Broke NFL player says Don't invest in a 401k

[gayl]

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Originally Posted by mystang52 A financial adviser lied? I guess there's a first time for everything.

+1

[ziggy29]

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Originally Posted by pb4uski You are missing nothing. We see the same thing very often on this forum regarding the "tax torpedo".... many people seem to forget that these savings were tax-deferred and not tax-free and resent that they have to pay tax on withdrawals... especially where they expected their tax rate in retirement to be lower than while they are working and deferred the income and as it turns out they were more successful than they expected and their tax rate in retirement is higher than they expected or even higher than when they were working and deferred that income. The problem is that they knew, or should have known, that risk when they deferred the income.

I have long been a fan of diversification of "sources" of retirement income just like I'm a fan of diversifying among asset classes in my asset allocation. We don't know the future in terms of our exact taxable income or political risk or economic risk, so it's risky to put all the eggs in one basket. Having a mix of taxable accounts, traditional retirement accounts and Roth retirement accounts gives one the maximum flexibility in terms of engineering their own sources of income and how much of it is taxable, as well as mitigating risk from going "all in" on one type of investment vehicle which gets creamed by future changes in law.

One could, for example, take income from a traditional tax-deferred retirement income source until they are close to smacking the top of (say) the 15% bracket (using current law), and then change to withdrawing from tax-free Roth investments and already taxed assets out of the taxable account to avoid going into the 25% bracket (or to avoid hitting some taxable income-based trigger).

[mickeyd]

My credentials from Ft. Benning, GA indicate that I am (or sorta am) a school-trained killer. So far I have only been able to get a government job leading infantry troops in battle, and that job did not pay well. Perhaps I can get qualified to advise NFL troops as to which Vanguard fund to select for their retirement plan.

[Huston55]

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Originally Posted by ziggy29 I have long been a fan of diversification of "sources" of retirement income just like I'm a fan of diversifying among asset classes in my asset allocation. We don't know the future in terms of our exact taxable income or political risk or economic risk, so it's risky to put all the eggs in one basket. Having a mix of taxable accounts, traditional retirement accounts and Roth retirement accounts gives one the maximum flexibility in terms of engineering their own sources of income and how much of it is taxable, as well as mitigating risk from going "all in" on one type of investment vehicle which gets creamed by future changes in law. One could, for example, take income from a traditional tax-deferred retirement income source until they are close to smacking the top of (say) the 15% bracket (using current law), and then change to withdrawing from tax-free Roth investments and already taxed assets out of the taxable account to avoid going into the 25% bracket (or to avoid hitting some taxable income-based trigger).

When I read the first sentence, I thought you were going to suggest “sources” other than the stock/bond market; like pensions, rental real estate, SPIAs, etc. I am certainly a fan of that sort of income source diversification.

[pb4uski]

+1... with Roth conversions I have transitioned from 44% taxable/53% tax-deferred/3% tax-free to 24% taxable/56% tax-deferred/20% tax free since retiring.

[Huston55]

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Originally Posted by pb4uski +1... with Roth conversions I have transitioned from 44% taxable/53% tax-deferred/3% tax-free to 24% taxable/56% tax-deferred/20% tax free since retiring.

Well done!

Sounds like spending the taxable; maybe taking some low/no tax cap gains, plus some Roth conversions.

[JoeWras]

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Originally Posted by Huston55 Well done! Sounds like spending the taxable; maybe taking some low/no tax cap gains, plus some Roth conversions.

Exactly. There's no reason to go bonkers on the worry of 401k future taxes and avoid 401ks all together. During ER low income years, there is head room to do these conversions.

I'm starting to think that a lot of FAs are negative on 401ks because they don't have access to them in a traditional "get my commission" way. Sure, some may charge the AUM fee, but it isn't the same as a commission.

Back during the Roth conversion tax window, a lot of FAs salivated over it because they could encourage people to yank 401k money out of the 401k into an IRA that the FA could play with. All while selling "a great tax deal." People at w*rk talked about this "great tax deal" (i.e. spread over a few years, courtesy of Congress) even though they were in the 33% tax bracket, and would be for the next few years. It didn't matter, the FAs sold them on the fact the conversion income would spread out over years. For what? NOTHING. I hope they came to their senses and didn't do it.

[pb4uski]

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Originally Posted by Huston55 Well done! Sounds like spending the taxable; maybe taking some low/no tax cap gains, plus some Roth conversions.

Yup. Exactly what we are doing. Managing to 0% LTCG and Roth conversions that have averaged less than 8% in tax compared to 28% or more when I deferred that income.

[Huston55]

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Originally Posted by Huston55 Well done! Sounds like spending the taxable; maybe taking some low/no tax cap gains, plus some Roth conversions. Quote: Originally Posted by pb4uski Yup. Exactly what we are doing. Managing to 0% LTCG and Roth conversions that have averaged less than 8% in tax compared to 28% or more when I deferred that income.

We have sizeable gains in our taxable account so, we fill up the 15% income tax bracket with CGs @ ZERO tax for now, and the next several years. We do this instead of Roth conversions, until we’re out of CG, because ZERO tax guaranteed seems better than paying LOW tax on the conversion and hoping our future tax rate is lower.

I’d be interested in hearing how others approach this choice.

[RunningBum]

Quote:

Originally Posted by Huston55 We have sizeable gains in our taxable account so, we fill up the 15% income tax bracket with CGs @ ZERO tax for now, and the next several years. We do this instead of Roth conversions, until we’re out of CG, because ZERO tax guaranteed seems better than paying LOW tax on the conversion and hoping our future tax rate is lower. I’d be interested in hearing how others approach this choice.

I do pb4's way, filling 15% (or rather, keeping under 400% FPL these days) from Roth conversions because with RMDs I'll have to withdraw from the tIRA eventually. I may be able to defer LTCGs forever, in which case my heirs get a stepped up basis.

Also, future gains in the Roth will be forever tax free, while in the taxable account they may not be. Finally, I have a pretty good sized tax loss carryover that I'm hoarding for the $3000 loss I can take each year, to help keep me under 400% FPL. The carryover loss also protects me against an unexpected CG distribution from my funds.

[pb4uski]

Quote:

Originally Posted by Huston55 We have sizeable gains in our taxable account so, we fill up the 15% income tax bracket with CGs @ ZERO tax for now, and the next several years. We do this instead of Roth conversions, until we’re out of CG, because ZERO tax guaranteed seems better than paying LOW tax on the conversion and hoping our future tax rate is lower. I’d be interested in hearing how others approach this choice.

That is a decision that I had to make.... in fact, the first year that I retired it was unclear how long the 0% LTCG would be available and I filled up the 15% tax bracket with LTCG (gains trading) rather than Roth conversions. Then they made 0% "permanent" and since I only had at most 13 years to do low cost Roth conversions I shifted to those... assuming that I can do 0% LTCG later.

However, in reality I do both since we are living off of our taxable portfolio that is all equities other than cash and I replenish the cash annually when I rebalance by selling equities. For example, last year 57% of our tax return income was LTCG since I sold equities for a winter condo that we bought and 28% was Roth conversions. For this year, I think it will be more like 30% LTCG and 40% Roth conversions.

[CardsFan]

Quote:

Originally Posted by Huston55 We have sizeable gains in our taxable account so, we fill up the 15% income tax bracket with CGs @ ZERO tax for now, and the next several years. We do this instead of Roth conversions, until we’re out of CG, because ZERO tax guaranteed seems better than paying LOW tax on the conversion and hoping our future tax rate is lower. I’d be interested in hearing how others approach this choice.

In our case we are living off of the after tax div/int/ cap gains distributions (no selling) and then pulling from my tIRA for spending (only Div/int and cap gains dist. as well) and DW's tIRA for Roth rollovers. If we need a little extra, to stay in the 15% bracket that will come from cash.

I know it is kind of backwards, but the logic is:
- Our WR is Low (2.5-3%), and will be a LOT lower when SS kicks in at FRA (3+ years)
- We have one son who will inherit our stash when we cease to be here.
- Odds are high that we can live, comfortably, only off of my tIRA funds
- Taxes WILL be paid on my tIRA, by someone, sometime
- After tax account will get stepped up value when we pass

This may not be the PERFECT way to do it, but it works for us. I guess we are paying taxes now to save it from DS, but we are still paying, at most, 15% on money that was deferred at 25% to 28%. Effective tax rate is mid single digits.

FWIW, there are dozens (hundreds?) of methods to use, and I am not really worried if I left 1-2% on the table to the feds.

We are comfortable, and have a plan to follow.

YMMV.

[43210]

Hmm, should I invest money with this person.
Broke ...
Strike one
NFL player ...
Strike two
says Don't invest in a 401k
Strike three

Any time I hear someone say, "Don't invest in a 401k" (or "empty it out and let me look after it") it just sounds like someone trying to gather AUM at their clients' great expense.

[ChiliPepr]

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Originally Posted by Senator And if my employer could have been taxed as a non-profit,

The NFL teams have never been taxed as a non profit, the NFL League Office used to be a tax-exempt entity, but that was given up in 2015.

[jazz4cash]

Much more positive ex NFL player story:
Ex-NFL player who lived on $25,000 a year shares the key to saving
https://www.cnbc.com/2017/11/03/nfls...ave-money.html

[harley]

I'm glad Urschel can do math, because the reporter certainly can't. Just because you live on 4% of your income doesn't mean you get to save the other 96%. I guess she's never heard of income tax, FICA, state and local taxes (every state a player plays in gets a chunk). At $600K he'd be lucky to save 50%. Not that that's not pretty good, but still...

[JoeWras]

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Originally Posted by harley I'm glad Urschel can do math, because the reporter certainly can't. Just because you live on 4% of your income doesn't mean you get to save the other 96%. I guess she's never heard of income tax, FICA, state and local taxes (every state a player plays in gets a chunk). At $600K he'd be lucky to save 50%. Not that that's not pretty good, but still...

Union dues. Fines. Agent fees. Etc.

Otherwise, the article is great and he'd fit right in here on this forum.

[jazz4cash]

I don't think it was mentioned in the article but I heard he retired at 26 out of concern for CTE risk. He's certainly got skills to make a good living after football.