401k(s) are not the best way to save for retirement?

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FireProof
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Re: 401k(s) are not the best way to save for retirement?

Post by FireProof » Fri Jun 10, 2016 6:27 pm

If your tax rate will be the same at retirement, Roth is simply better. You tax-defer MORE money, since the limit is the same, but the Roth limit is after tax, so you are essentially protecting the greater pre-tax part of your income.

canga
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Re: 401k(s) are not the best way to save for retirement?

Post by canga » Fri Jun 10, 2016 7:06 pm

Just had a rather morbid thought. It appears that none of these articles address the life phases that can be expected for a household with a sole breadwinner, or a household where one spouse earns significantly more than the other, which is probably the case for many people on this forum.

I fully understand that Trad 401k saves you the highest tax brackets while contributing, and is taxed at marginal rates while withdrawing. In fact I'm contributing to a Trad 401k for this reason.

However, consider one spouse earns significantly more than the other, but benefits in taxes due to filing MFJ and has 18 years of claiming their children as dependents.

After the kids are grown and gone, one spouse passes away several decades before the other spouse, leaving them to file MFS. I could expect that this would significantly impact the decision of using Roth or Trad.

It seems our own mortality may also be a consideration for this debate. Has anyone seen any article that has addressed this issue?

The Wizard
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Re: 401k(s) are not the best way to save for retirement?

Post by The Wizard » Fri Jun 10, 2016 8:18 pm

canga wrote: ...After the kids are grown and gone, one spouse passes away several decades before the other spouse, leaving them to file MFS. I could expect that this would significantly impact the decision of using Roth or Trad.

It seems our own mortality may also be a consideration for this debate. Has anyone seen any article that has addressed this issue?
No articles, but this gets touched on in the forum at times.
And surviving spouse files as SINGLE, not MFS.
This is not "really" a problem since surviving spouse has more than enough income, just that the taxes seem annoying.
The real problem with married couples sometimes is that one is proficient in low cost investing while the other is blissfully naive.
Oh well...
Attempted new signature...

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boomer
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Re: 401k(s) are not the best way to save for retirement?

Post by boomer » Fri Jun 10, 2016 9:03 pm

Earlyretirementnow wrote: " Actually, the "roast" of the Kiplinger article is here: https://earlyretirementnow.com/2016/06/ ... m-the-web/
Quite appalling what they post these days on Kiplinger."

Thanks for the link to this article. I've saved thousands in taxes over years of maxing out my 401K.

Another thing to consider is inflation. As it rises, those RMDs won't seem so huge.

KlangFool
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Re: 401k(s) are not the best way to save for retirement?

Post by KlangFool » Fri Jun 10, 2016 9:15 pm

canga wrote:
After the kids are grown and gone, one spouse passes away several decades before the other spouse, leaving them to file MFS. I could expect that this would significantly impact the decision of using Roth or Trad.
canga,

Why?

You have 2 choices:

A) Having too much money at retirement and have to pay a lot of taxes.

B) Not having enough money at retirement.

What would you choose? (A) or (B)?

If you choose Trad. 401K, the worst possible outcome is (A). It is NOT TOO BAD.

If you choose Roth 401K, the worst possible outcome is (B). This is FATAL.

Do not be TOO GREEDY. Make sure that you have ENOUGH MONEY at RETIREMENT.

KlangFool

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Artsdoctor
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Re: 401k(s) are not the best way to save for retirement?

Post by Artsdoctor » Sat Jun 11, 2016 7:13 pm

It's a rare bird that advises against tIRAs altogether. His article appropriately asks the reader to consider alternatives to a tax-deferred account but otherwise misses the mark on many levels.

Trying to predict marginal rates 30 years into the future is impossible.

Although there are exceptions, delaying taxes is usually preferable unless you can really be sure prepaying is beneficial.

I agree that a taxable account is essential and he's right to advocate them. TLH and contributing appreciating shares to charities cannot be accomplished any other way.

He totally neglects the role of state income tax. California is the largest state in the country and there are plenty of people who will work here and move to another state with far lower income tax.

Ideally, one would want a taxable account, a Roth, a HSA, and a tax-deferred account. Retirement is all about options.

Alchemist
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Re: 401k(s) are not the best way to save for retirement?

Post by Alchemist » Sun Jun 12, 2016 10:33 am

I do not understand the dogmatic stances taken on issues like this, as demonstrated in the article the OP posted. Taxes are such a weird and variable part of personal finance that almost any blanket statement is wrong. For instance, I am single and made $93k last year and this year will make just shy of $100k. But I use only Roth options. Am I crazy?

Nope. I'm a military officer, my taxable income last year was only $36k thanks to things like my housing allowance not being taxed and spending about 5 months of the year in combat zones (pay earned in combat zones are not taxable). Additionally I plan to stay for 20 years and thus receive a pension so when I do tap my TSP or IRA, I will have a taxable income that will itself at least match my current tax bracket. Add social security or RMDs and a traditional retirement account could actually be even worse than taxable under some scenarios.

So Roth TSP and Roth IRA options make the most sense for me. But again, that is for ME and not everyone else. My brother who makes about the same amount of money in the private sector uses traditional 401(k) at work. He gets a match and makes sense for his situation. Finding any one size fits all answer, and certainly not one that involves whole life insurance, is either an errand for a fool or a sales person pretending to be a financial advisor.

heyyou
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Re: 401k(s) are not the best way to save for retirement?

Post by heyyou » Sun Jun 12, 2016 3:34 pm

Few would have read an article that agreed with previous ones. It is a catchy headline and helped to increase exposure to Kiplingers, thus it was a success.

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