What percentage of your gross salary goes into tax deferred retirement accounts?

[nun]

My point is that deferring taxes is a strategy which can backfire if you don't manage it carefully. Only a word to the wise as YMMV.

If you end up having to do large RMDs tax deferral might well be a bad move and there's always those pesky unknown future tax rates. But tax deferral does give the advantage of compounding tax free gains. I'm in a situation where I earn far more than I spend so saving to tax deferred accounts greatly reduces my current tax bill, in fact without saving to tax deferred accounts my tax rate would be 23%, maxing them out I paid 13% tax last year. I also save after tax to fund my ER before 59.5 and the strategy then becomes reducing the size of the tax deferred accounts by ROTH rollovers to use up my deductions and exemptions and the lower rate tax brackets. This is a situation when i-orp.com becomes your friend.

 

[JoeWras]

Exactly what I'm running into. I think that the issue of too much tax deferred would affect this group much more than the general population. The fact that the majority of people save too little is much publicized while chronic LBYM people are a minority that don't get the attention.

The deferral right now is still helping since we're in the high bracket. Taxes are absolute murder right now. It won't get worse. That's why we're maxing tax deferred saving.

If I stay till 55, my plan allows withdrawals then and I'll do it. If I leave before 55, I'll have to do some modeling and look into 72(t) withdrawals, especially if we don't take any PT work.

Does that plan make sense, or I'm I off the rails?

 

[ziggy29]

If I include my employer 401K match (fully vested so it's all mine), right around 25% for the household. I wouldn't include unvested company matches, though. And this only includes 401K and Roths, not other savings and investments.

 

[foxfirev5]

The deferral right now is still helping since we're in the high bracket. Taxes are absolute murder right now. It won't get worse. That's why we're maxing tax deferred saving.

If I stay till 55, my plan allows withdrawals then and I'll do it. If I leave before 55, I'll have to do some modeling and look into 72(t) withdrawals, especially if we don't take any PT work.

Does that plan make sense, or I'm I off the rails?

Your high income is certainly a consideration now. Overall your plan sounds workable, if your willing to be tied to the 72t rules. I found that my plan allows withdrawals after 55 but only as a one time deal. Then you need to roll it over to an IRA or take out an annuity. However the IRA comes with the 10% early w/d penalty and an annuity is out of the question at this age. The 72t option is too restrictive for me , I like to stay flexible with my future plans. It's something we need to figure out for our own circumstances

 

[W2R]

I always maxed out my TSP and Roth IRA, and then put aside more non-tax-advantaged money (after taxes) than both of those combined, making a total of around 75%. I put the after-tax money either towards paying off my house or my taxable portfolio. But then, that was because I had to put myself on the retirement-preparation fast track due to messing things up earlier in my life.

It all worked out in the end. Whether I saved fast or slow, I'm retired now and loving every moment of it.

 

[foxfirev5]

W2R - Yeah the Roth is almost always a good choice .

 

[panacea]

We're deferring about 23% to 401ks plus another 1% or so to the HSA. All other savings is in the form of after-tax contributions.

 

[Shanky]

I have maxed out 401K, over 50 catch up & HSA, but this is under 10% because of the cap limitations. Any other pre-tax options involve risks I am unwilling to take.

 

[steelyman]

The last few years I was working, I put a little over 50% into 403(b), 457 (deferred compensation), and Roth accounts. The 457 plans are a blessing, because for university employees (in Illinois, anyway) the notion of any "employer match" is a fantasy, there is none - so I just paid myself one and periodically sold taxable investments to make up the difference. Another plus is that you can start taking money from a 457 plan on separation, there is no 59-1/2 age restriction (which is still a few years away for me).

 

[Amethyst]

True. We have a tax deferred annuity that you can withdraw from any time you like, without penalty, after age 59.5. The catch? Gains are distributed before principal!

Amethyst

Not to throw a wet blanket on the idea of deferred savings, but... deferring taxes is a strategy which can backfire if you don't manage it carefully. Only a word to the wise as YMMV.

 

[Stress-Free Retirement]

My advice is to ONLY contribute up to the match (that's free money that you should grab!) and not a penny more.

Why save taxes today on a small amount of contribution, only to pay taxes (probably at a higher rate no matter what your politics are (we have a 16 TRILION debt load) on a much larger account balance.

[FONT=&quot]If given the choice, a savvy farmer would much rather pay income taxes on the low cost of his bags of seed now, rather than on the larger value of his truckloads of harvest later on. It’s pretty simple, deferred taxes equals compounded taxes. So whose retirement are you planning for -- yours… or Uncle Sam’s?[/FONT]

Just my professional advice... mark

 

[obgyn65]

I only contribute to a 401k plan to its maximum limits. I guess I invest a lot more net per year in CDs, not sure how much exactly - maybe in the $200k+ range, not sure .

Most financial advisers suggest that we put 10% or 15% towards retirement. So how much do you contribute? and where does it go.

I'm lucky to be employed by a state university so I have access to a 457, 403b and 401a plans and as I'm over 50 I can contribute $22.5k a year to the last two.

 

[lhamo]

Our current personal contributions to employer-managed retirement accounts are at 27% of our gross income. Mine are going into a Roth 403b, so will be tax free at retirement.

We contribute the max we can to Roth IRAs -- depends on how much time we each spend working in the US every year (me usually 1 week, DH usually 1-3 weeks, depends on meeting schedules). When you add those amounts in, this past year our contributions went up to about 32%.

We also get an employer contribution to our accounts. Mine is automatic (not matching -- I get it whether or not I contribute myself), currently 7.5% of salary, will increase to 10% of salary on Jan 1. DH's is a 2% match. When you add those in and bump our gross up accordingly, this past year it puts us at about 35% of gross.

We are also funding our kids college funds. And we have extra cash savings every month. Add it all up and we are saving 45-50% of our gross. We have a relatively low tax bill as most of our income is excluded from US income tax due to the Foreign Earned Income Exclusion.

 

[nun]

Another plus is that you can start taking money from a 457 plan on separation, there is no 59-1/2 age restriction (which is still a few years away for me).

I see my 457 plan as part of my post ER and pre-59.5 spending. I get to save in it tax deferred, all the gains are tax deferred and I can take income from it anytime after separation. No worries about a 10% penalty prior to 59.5.

 

[nun]

My advice is to ONLY contribute up to the match (that's free money that you should grab!) and not a penny more.

Why save taxes today on a small amount of contribution, only to pay taxes (probably at a higher rate no matter what your politics are (we have a 16 TRILION debt load) on a much larger account balance.

[FONT=&quot]If given the choice, a savvy farmer would much rather pay income taxes on the low cost of his bags of seed now, rather than on the larger value of his truckloads of harvest later on. It’s pretty simple, deferred taxes equals compounded taxes. So whose retirement are you planning for -- yours… or Uncle Sam’s?[/FONT]

Just my professional advice... mark

I don't see this at all if you manage your tax deferred accounts correctly. If you have a relatively large salary and an ability to defer large amounts of income why not do it? I reduce my current tax rate from 23% to 13% by contributing the max to my tax deferred retirement accounts and that money grows tax deferred too. When I retire I can then manage the rollovers/payouts to keep my taxes low and still maintain tax deferred growth. When RMDs kick in I will adjust my payments from other accounts to minimize the tax due. my goal is to keep a large fraction of my money compounding tax free and to manage my income to keep the tax I pay to below 15% every year. Obviously there is the wild card of future tax rates to consider too, but as I expect my post retirement income requirement to be about 30% of my current income I'm happy to defer tax.

 

[nun]

Why save taxes today on a small amount of contribution, only to pay taxes (probably at a higher rate no matter what your politics are (we have a 16 TRILION debt load) on a much larger account balance.

Because you don't pay tax on the "much larger account balance", but on the income you draw from the account. If you know that your retirement income requirement will be substantially less than your current salary, IMHO, it's a good idea to defer tax......even given the uncertainly of future tax rates.

 

[photoguy]

Agree with above. FIRE income is expected to be 1/5 or less of working income. So it's hard to imagine being in a higher tax bracket.

With respect to amounts, we just max out the contribution.

 

[Alan]

My advice is to ONLY contribute up to the match (that's free money that you should grab!) and not a penny more.

Why save taxes today on a small amount of contribution, only to pay taxes (probably at a higher rate no matter what your politics are (we have a 16 TRILION debt load) on a much larger account balance.

[FONT=&quot]If given the choice, a savvy farmer would much rather pay income taxes on the low cost of his bags of seed now, rather than on the larger value of his truckloads of harvest later on. It’s pretty simple, deferred taxes equals compounded taxes. So whose retirement are you planning for -- yours… or Uncle Sam’s?[/FONT]

Just my professional advice... mark

FIRE income is expected to be 1/5 or less of working income. So it's hard to imagine being in a higher tax bracket.

With respect to amounts, we just max out the contribution.

I agree with photoguy. While we were working we were in the 35% tax bracket so that is the rate at which we were deferring taxes. We've been retired 3 years now and will have access to those funds in 2 years at a much lower tax rate.

 

[seabourne]

I'm at about 36% among ESOP, Roth401(k), RothIRA and HSA. Despite probably being in a lower tax bracket in the future, I decided to take advantage of the current tax breaks that will expire to pay Roth401k taxes now and manage my taxes in the future on withdrawal. I probably won't be in the same "tier" on income taxes in the future, but I expect all the tiers to be higher, so may be equivilent.

Next year I may go back to regular 401k for the tax benefit and put the difference in a taxable investing account. The company ESOP has ended up being a majority of my funds due to growth and lack of ability to divest, and will all be taxable on withdrawal, so the reg vs. roth contributions will help me manage taxes in coming years.

 

[steelyman]

I see my 457 plan as part of my post ER and pre-59.5 spending. I get to save in it tax deferred, all the gains are tax deferred and I can take income from it anytime after separation. No worries about a 10% penalty prior to 59.5.

Another reason to go with 457 in Illinois is that the state (stupidly, in my opinion given the sad state of the budget) does not tax retirement income - pensions, IRA/401/403/457 withdrawals. Instead, they are clamoring to reduce pensions and health care benefits.

 

[sunrise]

Approx 5.5% of my gross goes into a tax deferred retirement account; the regular IRA is my only option (no 401 or hsa, etc).
I save another 10 - 20% on top of that. (I usually calculate my numbers from my net, which is 30% towards retirement)

 

[gerrym51]

I'm at 401k max

 

[plex]

I'm maxing it, my FIRE income is going to be 15-20% of what I'm making now. I'm at a waaaay higher tax bracket while working, to a ridiculous degree.

 

[tmm99]

I am maxing out my 401k with the catchup plus the backdoor IRA, plus HSA, but I am spending my HSA, so I don't know if that counts.