76.8% Return on 401K

[dmccarty]

Course, the other side of the coin is, does the company match a ROTH contribution? Mine does not, and to get the match, requires a 401K contribution.

Funny thing is that we planned on Social Security not being available, or greatly reduced, when we retire. I suspect it will be available when we retire early, and SS is going to pay for most of the bills. For now.

Given the mind numbing debt Congress keeps spending and spending and spending. Social Security will be cut one way or another. Most likely by inflation. At that point, we will need the 401K money, but we already are planning on taking money out of the 401K anyway to minimize RMD taxes.

It would not shock me that they will tax Roths for soooo many reasons.

Later,
Dan

 

[Richard]

Yes, they do.

My wife's 401k contributions for the past couple years have been going to a ROTH 401K. That option isn't available for me yet.

If she's under age 50, then she can put in $19,000 (perhaps $19,500) EVEN AS a Roth contribution. If she's 50 or over she can put in $26,000 AS a Roth contribution.

So if YOU want to add some.....YOU give her say, $1,000 a month (or whatever) and she takes it out of payroll deduction....and now you're adding to her Roth contribution. If she passes....you are (hopefully) the beneficiary so it goes back to you......if YOU are the one that's hit by the bus (never mind that she might be the one driving said bus.....with a sly smile on her face) well....it's hers.

If/when you can do a Roth 401K you can get a LOT more traction than the standard Roth IRA. Oh, and you can ALSO contribute to the Roth/IRA even if you are maxing the Roth 401K.

Read between some of those lines....you can finesse some funds around.... just make sure she doesn't dump your hiney for Mario the Pool Boy....

 

[JethroB]

Yes, we've always figured 8 years to double, but it's averaged less than 7 over our lifetime. For example, as I mentioned before, back in 2008 it dropped 30%, came back to even in 2 years, then doubled in 2 more. So despite the 30% drop, it doubled in 4 years. Crazy.

I always try to tune out the massive dips when looking at returns. 2008/2009, then last Spring due to COVID. I’m sure others do too. I started living off my nest egg 4 years ago. I have 11 years before the current RMD kicks in so I’m most concerned about any tax increases to capital gains and dividends. So far the lower tax rate plan in retirement is working for me.

 

[drssg]

Check my math. As for the ROTH vs. standard IRA, it seems to all come down to a crap shoot as to whether you believe you will be in a lower tax bracket when you remove money from the investment. If the investment rate of return is the same, and the tax bracket is the same, then the two options come out with identical results.

The following spreadsheet shows two options for investing $10,000 of gross income for 20 years. It assumes you pay 20% in taxes and get a 7% rate of return on investments.

For the traditional IRA, you invest $10,000 pre-tax, which grows to $36162, and after taxes it becomes $28932.
For the ROTH, you pay the taxes up front, invest $8000, which grows to $28932 tax free.

The ROTH option really gets boned if someone decides the ROTH people are getting away with something.

 

[MossRoad]

Check my math. As for the ROTH vs. standard IRA, it seems to all come down to a crap shoot as to whether you believe you will be in a lower tax bracket when you remove money from the investment. If the investment rate of return is the same, and the tax bracket is the same, then the two options come out with identical results.

The following spreadsheet shows two options for investing $10,000 of gross income for 20 years. It assumes you pay 20% in taxes and get a 7% rate of return on investments.

View attachment 696641

For the traditional IRA, you invest $10,000 pre-tax, which grows to $36162, and after taxes it becomes $28932.
For the ROTH, you pay the taxes up front, invest $8000, which grows to $28932 tax free.

The ROTH option really gets boned if someone decides the ROTH people are getting away with something.

Put 10,00 in the ROTH and see what happens.

 

[Richard]

Another viewpoint of your spreadsheet that you should add.... what if someone is putting in (I think you said) $10,000 of their gross income.

Just because the Roth is done as an after tax contribution, doesn't mean that the money is coming FROM the Roth contribution.

Meaning, you can STILL put $10,000 into the Roth and pay the tax out of your pocket.

People that try to max their IRA usually also try to max it if it were a Roth/IRA so in those situations, the taxes are coming out of their pocket, not their contributions.

Add another column & see if that changes anything.

 

[Richard]

Mosstoad beat me to a comment.

HA, I've been dying to use Mosstoad. I still think that's hysterical.

 

[MossRoad]

 

[Richard]

Tried to make a quick copy of your spreadsheet with the Roth. Since the Roth is tax free, you should have more funds then AND your distributions won't be conflicting (tax wise) with your social security, pension (if you have one) or rental income or any other income that might then bump you up a bracket.

What I illustrate to the people I talk to (who get a pension) is since they're going to have a pension (lifetime income that's 100% taxable), Social Security (lifetime income that's 100% taxable) "to me" it makes a lot of sense for them to also build a bucket of tax free money. What I urge them to consider is doing the Roth....and when they retire, to NOT dip into it to "fix their roof" type thing....but rather to maybe put it into INCOME PRODUCING investments and then simply peel the income off....tax free to augment their other/taxable income. If they can keep the 'golden goose' alive for the rest of their life, then they'll have that extra tax free income for the rest of their life.... if they need to dip into the golden goose, they can do so but now, it might only be a golden chicken with golden eggs.....then I'll ask if they'd rather have a gold goose egg or a gold chicken egg.

Invest	10000​
Post Tax:	0.8​
Return	1.07​
	Year	IRA	Roth
	1​	10,000.00	10,000.00
	2​	10,700.00	10,700.00
	3​	11,449.00	11,449.00
	4​	12,250.43	12,250.43
	5​	13,107.96	13,107.96
	6​	14,025.52	14,025.52
	7​	15,007.30	15,007.30
	8​	16,057.81	16,057.81
	9​	17,181.86	17,181.86
	10​	18,384.59	18,384.59
	11​	19,671.51	19,671.51
	12​	21,048.52	21,048.52
	13​	22,521.92	22,521.92
	14​	24,098.45	24,098.45
	15​	25,785.34	25,785.34
	16​	27,590.32	27,590.32
	17​	29,521.64	29,521.64
	18​	31,588.15	31,588.15
	19​	33,799.32	33,799.32
	20​	36,165.28	36,165.28
	Post Tax	28,932.22	36,165.28

 

[drssg]

Another viewpoint of your spreadsheet that you should add.... what if someone is putting in (I think you said) $10,000 of their gross income.

Just because the Roth is done as an after tax contribution, doesn't mean that the money is coming FROM the Roth contribution.

Meaning, you can STILL put $10,000 into the Roth and pay the tax out of your pocket.

People that try to max their IRA usually also try to max it if it were a Roth/IRA so in those situations, the taxes are coming out of their pocket, not their contributions.

Add another column & see if that changes anything.

I *think* you are suggesting to create another column for a ROTH investment of $10,000? If so, I don't see the point. It is no longer an apples to apples comparison. If I invest more money, I would obviously expect it to grow to more money.

All the money originally comes from my paycheck, so I don't see the point of a distinction between "contribution" money vs. "out of pocket" money.