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How to save for retirement?
Old 02-10-2019, 06:54 AM   #1
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How to save for retirement?

First post here...one basic question from a young dreamer. I have about 12-15 yrs left before Im hoping to retire before I hit 60. Other than maxing 401k @$19k and Roth IRA @$6k. Is there any other retirement saving vehicle that has tax benefits that I can use or do I only have taxable account options left?

Thanks all.
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Old 02-10-2019, 07:32 AM   #2
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HSA's if you have a high deductible health insurance plan. These can be treated like an IRA with taxable withdrawals in retirement if not used for medical expenses.

Otherwise there is a lot to be said for having a stash in taxable accounts. Should you get laid off these are the funds that will keep you afloat until you find another job. You can do "weird" things with a early Roth withdrawals, but otherwise your deferred savings is off-limits without paying early withdrawal penalties.
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Old 02-10-2019, 07:38 AM   #3
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+1 HSAs if you have a health insurance plan that qualifies.

Taxable account savings are good to have... particularly if for part of your time in retirement you will not qualify for penalty-free withdrawals from tax-deferred accounts.

Taxable account investments in international equities are usually tax-efficient because of the foreign tax credit, tax-free munis make sense in some situations and domestic equities get preferential tax rates for qualified dividends and LTCG.
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Old 02-10-2019, 07:46 AM   #4
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This may not answer your exact question. If you want to retire at 60, I don't know what you have saved. You're going to pay taxes, that's the way it works. Very few ways to avoid taxes, unless you're in the 1%.

If you're earning $50K/ year, live on $25K. Pretend the $25K does not exist. Put in investments. Drive your current car until it drives no more. Pay off any debts and avoid debt at all cost. Mortgage interest write offs are no longer a benefit. Home ownership appreciation is a benefit. If your home increases in value up to $250, no tax on that $250, if you sell and it's your primary residence. So, location, location, location.

My $.02.
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Old 02-10-2019, 07:58 AM   #5
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This may not answer your exact question. If you want to retire at 60, I don't know what you have saved. You're going to pay taxes, that's the way it works. Very few ways to avoid taxes, unless you're in the 1%.

If you're earning $50K/ year, live on $25K. Pretend the $25K does not exist. Put in investments. Drive your current car until it drives no more. Pay off any debts and avoid debt at all cost. Mortgage interest write offs are no longer a benefit. Home ownership appreciation is a benefit. If your home increases in value up to $250, no tax on that $250, if you sell and it's your primary residence. So, location, location, location.

My $.02.
+1 what Rianne said. Especially the comment If you're earning $50K/ year, live on $25K. Pretend the $25K does not exist. Put in investments. Drive your current car until it drives no more. Pay off any debts and avoid debt at all cost.
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Old 02-10-2019, 08:32 AM   #6
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To answer the OP’s question about savings vehicles with tax benefits, you can look at deferred annuities. Fidelity offers them for a .25% fee, no early withdrawal penalty, no RMD’s, no maximum investment and dozens of investment options.
Personally I would do tax efficient investments in a taxable account, but if you really desire a tax deferred wrapper, check out a deferred annuity.
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Old 02-10-2019, 08:54 AM   #7
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Originally Posted by EA-Sports View Post
First post here...one basic question from a young dreamer. I have about 12-15 yrs left before Im hoping to retire before I hit 60. Other than maxing 401k @$19k and Roth IRA @$6k. Is there any other retirement saving vehicle that has tax benefits that I can use or do I only have taxable account options left?

Thanks all.
Don't discount the taxable account, if you keep it tax friendly during your working years it won't be a burden. Once you retire, you may be happy to have money you can pull which may be tax free (LTCG up to max 12% tax bracket) or only 15% after that... it may be better than the money you have to pull from your 401k as ordinary income.
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Old 02-10-2019, 11:42 AM   #8
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Don't discount the taxable account, if you keep it tax friendly during your working years it won't be a burden. Once you retire, you may be happy to have money you can pull which may be tax free (LTCG up to max 12% tax bracket) or only 15% after that... it may be better than the money you have to pull from your 401k as ordinary income.


Agree. It was great to defer income to keep out of outrageous taxes but I became top heavy on tax deferred. Any chance to have after tax savings is a great plus to lower retirement income and any ACA subsidies
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Old 02-10-2019, 12:44 PM   #9
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Old 02-10-2019, 01:13 PM   #10
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At Mega I was able to put away additional money in my 401(k) that was post tax. I believe the max was over $40k. I later rolled it into a Roth.
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Old 02-10-2019, 01:24 PM   #11
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+1 what Rianne said. Especially the comment If you're earning $50K/ year, live on $25K. Pretend the $25K does not exist. Put in investments. Drive your current car until it drives no more. Pay off any debts and avoid debt at all cost.
This may seem like a painful thing to attempt. But I think if you get a spreadsheet and track every penny you spend each month, within a year you will see how much is typically wasted on soft drinks/coffee, impulse purchases, etc. Especially internet purchases that make it so easy to spend $ without leaving the comfort of your recliner. I have close relatives that routinely spend their entire paychecks, but want advise on how to RE. When I tell them about tracking every dollar spent, their eyes glaze over like it is simply too much trouble.
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Old 02-10-2019, 01:31 PM   #12
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This may not answer your exact question. If you want to retire at 60, I don't know what you have saved. You're going to pay taxes, that's the way it works. Very few ways to avoid taxes, unless you're in the 1%.

....

My $.02.
Curious what the 1% are doing to avoid taxes. You make it sound easy. Maybe the 1% club didn't send me this month's newsletter. What tactics are they using exactly?
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Old 02-10-2019, 02:05 PM   #13
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Originally Posted by EA-Sports View Post
First post here...one basic question from a young dreamer. I have about 12-15 yrs left before Im hoping to retire before I hit 60. Other than maxing 401k @$19k and Roth IRA @$6k. Is there any other retirement saving vehicle that has tax benefits that I can use or do I only have taxable account options left?

Thanks all.
You don't give us a lot to go on here (marginal tax bracket or income level would help, married/single?), but as others have said, don't discount the benefit of having after tax money, or even better, Roth IRA/401k money. In our case we ended up with about 1/3 after tax money. Now using that to live on while making Roth conversions. Unfortunately (or actually good fortune), we will still need to pay the tax man at RMD time. Not complaining, just a fact.

IMHO, if you are in the 12% bracket, max out your Roths (after getting any company match). In the 32% and above brackets, max out tax deferred and take a look at other options (like annuities as mentioned earlier, but I know nothing about them). In between (22%-25%) I would max out tax deferred, then Roth then after tax. IMHO, odds are high this is where you will be by RMD time.

FWIW, I am giving you my opinion based on hindsight. I did not invest in Roth accounts until very late in my career. Wish I had done it sooner.
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Old 02-10-2019, 02:15 PM   #14
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At Mega I was able to put away additional money in my 401(k) that was post tax. I believe the max was over $40k. I later rolled it into a Roth.

This is what I was going to suggest. Your time frame is up to 12 years of growth tax free.
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Old 02-10-2019, 04:51 PM   #15
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Curious what the 1% are doing to avoid taxes. You make it sound easy. Maybe the 1% club didn't send me this month's newsletter. What tactics are they using exactly?

I believe Warren Buffet famously stated his secretary pays more in taxes than he does.

And if you don't mind referring to a link, Amazon paid 0 taxes in 2017.
https://www.snopes.com/fact-check/am...al-taxes-2017/


As far as tactics, I can't afford the team of CPA's and attorneys they employ, so I couldn't tell you the tactics.
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Old 02-10-2019, 04:54 PM   #16
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I believe Warren Buffet famously stated his secretary pays more in taxes than he does.

Correction, he said she pays a higher tax rate than he does. Primarily due to the difference between taxes on income and taxes on capital gains.
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Old 02-10-2019, 04:58 PM   #17
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Correction, he said she pays a higher tax rate than he does. Primarily due to the difference between taxes on income and taxes on capital gains.
Right! She couldn't possibly pay more taxes than him, but the tax rate for Warren is lower. But the link about Amazon is pretty sad.
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Old 02-10-2019, 05:06 PM   #18
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Another recommendation to save a good amount in already taxed accounts. I’m one of those that maxed out all my tax deferred savings and at 57, I would prefer to have more money already taxed so I can managed my tax deferred accounts withdrawal before I’m forced to withdrawal when I hit 70 1/2. Of course that means I should have spent less money.
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Old 02-10-2019, 05:17 PM   #19
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Right! She couldn't possibly pay more taxes than him, but the tax rate for Warren is lower. But the link about Amazon is pretty sad.
Why are we discussing Amazon's tax payments in a thread about how to save for retirement?
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Old 02-10-2019, 05:25 PM   #20
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People make it sound like a crime. We are only required to pay as much taxes as we owe. If you want to pay more...well that is up to you.
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