How much of your nest egg is after-tax money?

[Martha]

About 18% is pretax in a 401k, the rest post tax. Some bad investments in the 401k. And our old plan, before I undertook to change providers when I was in managment, had a lot of crappy choices. We also took some money out to invest in real estate and the real estate did well. Only in the last few years have I been dumping the maximum into the 401k.

 

[kramer]

I am at about 24% tax deferred in IRAs and 401(k). I just semi-FIREd.

I maxed out the 401(k) pretty much my whole career, and also put some money in non-deductible IRA and ROTH when I was eligible, but that career was only about 12 years long.

I also have some 3%+ real I-bonds in taxable that are basically the same thing as tax deferred since I won't need to cash them out until I am in my mid-60s.

I keep all of my tax deferred in bonds. And most of my taxable account is in equities. This is very tax efficient.

I am hoping to avoid 72(t) altogether, and have about 50/50 post/pre tax split at age 60.

Kramer

 

[audreyh1]

> 90% post tax. There always seemed to be barriers to how much we could put away pre-tax. Couldn't add to IRAs because of 401K. Limited to amount we could put in 401K annually because we were "highly compensated". I suppose that's a good problem to have but I remember how frustrating it was at the time.

Of course it was my post-tax investments (company stock, stock options) that really paid off.....

Audrey

 

[Rich_by_the_Bay]

I'm feeling "poor" with all my qualified money.

It really does raise important questions about how applicable the oft-flaunted "benchmark" numbers are: the retiree's portfolio really needs to be significantly larger for the high pre-tax crowd than for the high post-tax savers. Good to keep in mind when mentally comparing your plans and experience vis-a-vis others on the board. It's a big "separator" if you don't adjust accordingly.

 

[frb53]

33%

 

[dmpi]

I'm 60% post tax. I try to put stocks in post-tax. While bonds/fixed income goes in pre-tax.

 

[Dawg52]

21% in pre-tax 401k account.

 

[wabmester]

I'm feeling "poor" with all my qualified money.

It really does raise important questions about how applicable the oft-flaunted "benchmark" numbers are: the retiree's portfolio really needs to be significantly larger for the high pre-tax crowd than for the high post-tax savers. Good to keep in mind when mentally comparing your plans and experience vis-a-vis others on the board. It's a big "separator" if you don't adjust accordingly.

I'm not sure I follow your logic. You'll only get taxed once when you withdraw. Those with taxable portfolios get taxed on every reinvested dividend or interest and on the gains after a sale, as well as on the originally invested income.

 

[Cb]

~20% in taxable accounts at present.

In the early retirement years while we're drawing down the taxable $$ we'll convert t-IRA's to Roth's to the top of the 15% bracket, perhaps deferring the start of SS to do more conversions (depending on SS regs & tax laws at the time)

Having a high % in tex-advantaged accounts gives us more flexibility in portfolio construction and rebalancing than we'd have otherwise. We hold total markets & tax-managed Int'l in the taxable accounts, and have numerous less tax-efficient asset classes and rebalance within the tax-advantaged accounts.

Cb

 

[lazygood4nothinbum]

i'm at about 20% in inherited ira, tira & roth combined. i started converting the tira to roth, while staying within the 15% bracket. but i really have no idea what i'm doing. i feel i should have more money in a roth and so i was thinking about getting a part time job to fund it. i don't think i need the money it just seems i should have more money in the roth. i don't know why i think that. i might be just trying to keep up with the rothes (they live next door to the joneses).

 

[baldeagle]

13% in after tax. Rest is:
84% IRA
3% Roth

We drank the cool aid on 401Ks and IRAs for many years. Roth didn't arrive soon enough to add much. Would have more taxable if we hadn't paid off the house before retiring 2 years ago.

Now we are converting IRA to Roth to maximum of 15% bracket every year before age 70.5 arrives (we are 62). Nice thing about IRAs is that we put money in at tax brackets upwards of 28% but are taking it out at 15%. Roth conversions will minimize amount that MRDs push into 25% bracket according to Excel spreadsheet.

We live on the IRAs, SS, and a micro pension, and pay taxes and extraordinary expenses (trips, house paint, repairs, and other assorted occassional biggies) from taxable account. When it runs out, we'll use Roth for same.

 

[Trek]

100% after-tax here. I never paid much attention to the 401K or IRA's when I was younger. I changed jobs a lot and then started my own business.

 

[Linney]

I used to follow the recommended path of:
- contribute to 401k to get company match
- contribute to Roth
- contribute to 401k to the max
- contribute to taxable accounts

I never seemed to have enough funds to get to the taxable accounts

Over the years it started to bug me that everything I had saved was tied up in tax-deferred accounts that I could not access until I was 60. About that time the following Scott Burns article appeared:
Another Way You Can Diversify

Yeah, I'm a Scott Burns fan. And that article hit home for me. Today I still contribute enough to my 401k to get the match (free money!) but instead of maxing it out, I now put that money in a taxable account. Maybe I could do better overall with the 401k maxed out, given the option of 72t withdrawals, but I really like the flexibility of having a taxable account that I can use in the manner as I see fit -- hopefully to bridge us from early retirement to age 60.

edit: fix typo

 

[JJac]

Not FIREd yet... another 2 or 3 years.

I'm about 80% outside or IRAs / 401ks. I haven't had enough years of 401k contributions to amount to much. I assumed that my retirement tax rate would be lower than my working tax rate, so I never contributed to a ROTH when my income was lower and it was possible

 

[kramer]

Here is a metric to track -- Portfolio Tax Basis

Here is how I compute it:

CB = Tax Basis (or Cost Basis) in taxable accounts
Non-IRA = non-deductible IRA contributions
ROTH = total ROTH IRA


Portfolio Tax Basis =

(CB + ROTH + Non-IRA) / NetWorth


You can also divide the rest of your net worth (if you realized everything right now) into how it would be taxed, capital gains or ordinary income:

Deferred Ordinary Income and Deferred Capital Gains

These three numbers should add to one. The last time I checked, my mix was:

Portfolio Tax Basis: .46

Deferred Ordinary Income: .225

Unrealized Cap Gains: .315

Kramer

 

[haha]

And deferred ordinary income is for example what is in traditional IRAs, 401K, etc.?

Ha

 

[Sandy]

I am just over 50% after tax. A chunk of that was from an inheritance. As we keep putting $$ into tax deferred, that balance will shift to a greater percentage there. Having the flexibility to access to those aftertax funds is good.

 

[Milkman]

Only 4% of our liquid net worth is in after tax accounts.

Since the early 80s, I have always put the maximum in tax advantaged accounts. My thought process was that I couldn't spend it if I couldn't get to it. I would use year end bonuses to fund IRAs. I have made the maximun IRA/Roth contribution every year, except once, since 1982. I have always done the maixmum on 401ks every year that they have been available to me since 1984. Now we are funding my wife's IRA as well.

It seemed that it was difficult to save much of anything after that. Something always seems to come up; like kid's college, major house repair, etc. I always wanted to have that 3-6 months of expenses for an emergency fund. On the other hand, I never had to wait to long for the other shoe to drop. I guess that is why it is an emergency fund.

I consider myself fortunate that I had the discipline to max out IRAs and 401ks. Those funds have done well. Otherwise I spent what I made.

Milkman

 

[Surfdaddy]

I'm not sure I follow your logic. You'll only get taxed once when you withdraw. Those with taxable portfolios get taxed on every reinvested dividend or interest and on the gains after a sale, as well as on the originally invested income.

WAB, I think what Rich was saying is that when you have $50K you spend from a taxable account in retirement, you have $50K to spend. If it is coming from a pre-tax account then you have to subtract the taxes. So if the tax rate was 10% (effective), then you would have only $45K to spend. So $1M in a taxable account gives you $1M, but the same amount in a pre-tax account gives you less to actually spend, as you have to pay taxes on that amount. So to be in an "equivalent" level of prosperity, $1M in a post-tax account is worth more to you than the same amount in a pre-tax account.

One other effect that hasn't been mentioned is deferred capital gains. In my case I have about 75% of my money in post-tax accounts. They're set up to minimize capital gains (mostly in index funds). But as time goes on my deferred capital gains grow. When I finally RE I will still have some tax liability in my post-tax accounts, but not as much as from the traditional IRAs, 401Ks, etc.

 

[wabmester]

So $1M in a taxable account gives you $1M, but the same amount in a pre-tax account gives you less to actually spend, as you have to pay taxes on that amount. So to be in an "equivalent" level of prosperity, $1M in a post-tax account is worth more to you than the same amount in a pre-tax account.

But you still have to pay taxes on the gains from the taxable account when you sell. And on the interest. And on the dividends. And if you're reinvesting the interest/dividends/gains during your retirement, you get taxed twice: on the original distribution as well as on the new gains.

Over the long term, the tax deferred account should do better, and since we're ER's, the long term matters a lot.

And there's always a chance that you'll pay no taxes at all on your tax-deferred accounts. All you need to do is die before you get your first RMD.

 

[ScaredtoQuit]

I'm more like you Rich

My heaviest saving has always been in my 401K where I have contributed 15% and enjoyed a copany match of 5% for the last 25 years. For years while paying a mortgage, paying college tuitions, etc., etc., etc. I really wasn't able to save anything else. It wasn't until quite recently that I've been able to start saving anything outside of this vehicle. Currently I've got about 10% of my savings in non-qualified vehicles.

 

[deserat]

We are currently 65% tax deferred, 35% after tax - we are maxing out as much of the tax deferred as possible as well as adding to the after tax - the after tax is going to be a supplement to our small pension until I hit 60, 62 and 65 respectively and get my pensions. Our tax deferred will stay in tax deferred for a long time - hoping to live totally off the small pension in 5-8 years and the after tax earnings (4% or less).

 

[tryan]

interesting poll ... being 3/4's real estate I voted in the last bracket. This is not to say I realized the taxes on those gains ... but it's not tax sheltered.

 

[wabmester]

interesting poll ... being 3/4's real estate I voted in the last bracket. This is not to say I realized the taxes on those gains ... but it's not tax sheltered.

Real estate has to be the best investment tax-wise. $500K tax-free cap gains every time you sell your residence. Depreciation allowance on rentals. 1031 exchanges. Who needs an IRA?

 

[Rich_by_the_Bay]

But you still have to pay taxes on the gains from the taxable account when you sell.

No controversy about that. It's a planning matter, however, to the extent that ordinary income is taxed differently from gains, etc.