Where should i put this thread?
For those of us contributing $17.5k a year, our 401(k)s may be significant. If we have a 20-40 year investment horizon and an aggressive risk appetite, we fully expect a disproportionate amount of investment earnings.
How that proportion is taxed is very important--here's an oversimplification:
A. If that proportion is in a Roth IRA than it will not be taxed.
B. If that proportion is in a Traditional 401(k) than it will be taxed at the marginal income rate at which you pull it out. And the remainder will be taxed as a lump sum inheritance upon your death. Depending on how perfectly you are able to anticipate your own death, this could be minimized, but will never be less than 20% tax rate or so.
The obvious conclusion is that A is better than B; but how much better? And, how do we get to A?
There's the obvious $5500 annual contribution, but that doesn't end up being significant and doesn't solve the problem here, forgetting many of us are above the IRS max.
You can roll money from employer sponsored plans, but it will be taxed at your income rate and usually you have to leave the company to roll it all over.
Has anyone considered taking a year off to be a bartender on a Norwegian cruise ship or a missionary in Jamaica? By my calculation, it may be worth it.
:popcorn:
For those of us contributing $17.5k a year, our 401(k)s may be significant. If we have a 20-40 year investment horizon and an aggressive risk appetite, we fully expect a disproportionate amount of investment earnings.
How that proportion is taxed is very important--here's an oversimplification:
A. If that proportion is in a Roth IRA than it will not be taxed.
B. If that proportion is in a Traditional 401(k) than it will be taxed at the marginal income rate at which you pull it out. And the remainder will be taxed as a lump sum inheritance upon your death. Depending on how perfectly you are able to anticipate your own death, this could be minimized, but will never be less than 20% tax rate or so.
The obvious conclusion is that A is better than B; but how much better? And, how do we get to A?
There's the obvious $5500 annual contribution, but that doesn't end up being significant and doesn't solve the problem here, forgetting many of us are above the IRS max.
You can roll money from employer sponsored plans, but it will be taxed at your income rate and usually you have to leave the company to roll it all over.
Has anyone considered taking a year off to be a bartender on a Norwegian cruise ship or a missionary in Jamaica? By my calculation, it may be worth it.
:popcorn:
Retirement Accounts and Taxation
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