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

[travelover]

I wouldn't take financial advice from someone who spends all day banging his head into more or less immovable objects.

 

[JoeWras]

Tough crowd! Sheesh.

 

[aja8888]

Tough crowd! Sheesh.

Obviously no ex-football players here!

 

[Senator]

Obviously no ex-football players here!

I think the football players (and the NFL) bring it on themselves. My (former) employer could have paid me a lot more money if my workplace was provided for my employer free.

And if my employer could have been taxed as a non-profit, even more money. And pay me even more if non-customers were forced to buy the employers services as part of a 'package', whether or not the customer wanted the service... the list goes on. If Weinstein was an NFL player, he would still be playing.

 

[brucethebroker]

Maybe headline should read "Broke NFL former employee....", since he never played a game?

 

[brucethebroker]

But pro football players often earn huge sums of money for a few years, like winning small lotteries in that time. They then spend way too much, not realizing (or ignoring) that those big incomes will end, often pretty quickly and often unexpectedly (i.e. from injuries).

Yeah, I have always thought taxing them based upon a 10-30 year average or something would be more fair than having to pay the highest tax bracket for a few short years.

 

[Chuckanut]

Interesting post.

I was listening to a well known radio talk show consumer advocate talk about his investment presentations he makes to professional athletes. He just gives advice and is not selling anything as far as I know.

He says the younger players are mostly not paying attention, the older players (30+) are listening, and the coaches, managers, etc. are hanging on every word.

 

[mystang52]

Slightly off topic, but I don't get the "complaints" about paying taxes on 401K withdrawals. Did the complainers - and those FA's - forget that the 401K's were funded by pre-tax dollars? What am I missing?

 

[JoeWras]

Slightly off topic, but I don't get the "complaints" about paying taxes on 401K withdrawals. Did the complainers - and those FA's - forget that the 401K's were funded by pre-tax dollars? What am I missing?

You are missing nothing. This guy's focus is not in the right place. RMDs are just a part of planning. He strangely focuses on it. But, hey, home equity loans are just fine. Go figure.

 

[braumeister]

 

[Huston55]

Yeah, I have always thought taxing them based upon a 10-30 year average or something would be more fair than having to pay the highest tax bracket for a few short years.

Interesting thought. Would you advocate the same for all professions? Wall Street brokers & bankers? Real Estate brokers? Lottery winners? Etc?

 

[pb4uski]

Slightly off topic, but I don't get the "complaints" about paying taxes on 401K withdrawals. Did the complainers - and those FA's - forget that the 401K's were funded by pre-tax dollars? What am I missing?

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.

 

[bclover]

He graduated because he played football, not because he had the academic qualifications to graduate... And HS as well.

Most football players have the IQ of a dim light bulb.

Hey!!
The old guy and son #2 are both college ball players. Lol look as with every situation you cannot blindly go through the motions without being engaged.
My son had no illusions that he was going to go pro. We stressed to him how great an opportunity to go to college for free and travel. He was on a partial football scholarship He's graduating in june with a dual degree in Business and public relations
As for this guy. Simply another guy hanging a shingle.

 

[Huston55]

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.

+1

It would be great to see an analysis that quantifies the benefit (all other things being equal) of using tax-deferred accounts (Net Present Value comparison, % comparison or, X-factor comparison). I’d expect that already exists somewhere, if someone knows of it and wants to post it.

 

[TuborgP]

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 say with great pride that we are almost 70 and in the 28th tax bracket. Paying more than we need to wasn’t a goal but needing to was.

 

[gayl]

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

+1

 

[ziggy29]

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]

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]

+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]

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]

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]

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.

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]

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.