EZC-Boston Posted November 18, 2004 Share Posted November 18, 2004 Actually if tax brackets stay the same and you're in the same marginal bracket when you retire as you are now, the 401k and Roth would work out to be the same. Taxed up front, taxed at the end, it doesn't make a difference mathematically. 122441[/snapback] I don't think this is true, but I don't feel like thinking about why, can anybody help? Link to comment Share on other sites More sharing options...
IDBillzFan Posted November 18, 2004 Share Posted November 18, 2004 Everyone seems to be talking about how this thing will pay off, but I'll add one more thought. Yes, your company is providing matching funds up to a certain percentage, but you only get that money based on how long you are with the company. Depending on who you work for, you may not be fully vested until after 5 years of employment. In many cases, the amount you can keep will slide with the passing years; you may get to keep 30% of it after two years with the company, 70% after four years and 100% after five years. If you don't know how this breaks down, you probably should. Please don't assume that because a company is providing matching funds that they're actually YOUR matching funds...yet. And you don't want to quit four weeks before you would suddenly hit the 100% mark. I've seen people do it. May be an obvious point. If so, I apologize. And Alaska Darin is right, but the way. If you're young, and you're not taking advantage of if, you're screwing yourself. Ask the 40-year-olds like myself who said "Later, later, later." Kick myself everyday for not doing it sooner. As one of the guys here would say: Git 'er done. Link to comment Share on other sites More sharing options...
Fezmid Posted November 18, 2004 Author Share Posted November 18, 2004 Everyone seems to be talking about how this thing will pay off, but I'll add one more thought. Yes, your company is providing matching funds up to a certain percentage, but you only get that money based on how long you are with the company. Depending on who you work for, you may not be fully vested until after 5 years of employment. In many cases, the amount you can keep will slide with the passing years; you may get to keep 30% of it after two years with the company, 70% after four years and 100% after five years. If you don't know how this breaks down, you probably should. Please don't assume that because a company is providing matching funds that they're actually YOUR matching funds...yet. And you don't want to quit four weeks before you would suddenly hit the 100% mark. I've seen people do it. May be an obvious point. If so, I apologize. And Alaska Darin is right, but the way. If you're young, and you're not taking advantage of if, you're screwing yourself. Ask the 40-year-olds like myself who said "Later, later, later." Kick myself everyday for not doing it sooner. As one of the guys here would say: Git 'er done. *Excellent* point. My breakdown is 25% after 2, 50% after 3, 75% after 4, 100% after 5. My company uses Fidelity (401k.com), and it actually told you how much you had in the account and how much you were vested in. Handy. CW (BTW LA - I sent you a PM yesterday. ) Link to comment Share on other sites More sharing options...
MRW Posted November 18, 2004 Share Posted November 18, 2004 I don't think this is true, but I don't feel like thinking about why, can anybody help? 122605[/snapback] OK, here's an example using numbers I pulled out of my butt: Let's say you have $1000 pre-tax to invest and the money will be taxed at 30% whenever you "earn" it. If you put it into a 401k and it grows at 10% a year (told ya I was pulling this out of my butt) it will amount to $17,449.40 after 30 years. When you withdraw the money, after 30% tax it will amount to $12,214.58. If you put it into the Roth, you will have only $700 after tax. Growing at 10% a year for 30 years that will also amount to $12,214.58. So with the Roth the initial amount is smaller, but the amount of tax paid is much smaller, and it ends up the same. That's just the math though, as a practical matter tax brackets are likely to change, and there will be a difference between the 401k and the Roth. Link to comment Share on other sites More sharing options...
Guest Guest Posted November 18, 2004 Share Posted November 18, 2004 Whatever you do DO NOT use life insurance as an investment. Sorry to say but that is a horrible idea. Link to comment Share on other sites More sharing options...
Stussy109 Posted November 18, 2004 Share Posted November 18, 2004 Actually if tax brackets stay the same and you're in the same marginal bracket when you retire as you are now, the 401k and Roth would work out to be the same. Taxed up front, taxed at the end, it doesn't make a difference mathematically. the formula for compound interest for a single investment is 1.xx(ie. .09= expected rate of return) to the (n)th power (n= number of years invested) x the principle investment. SO lets do a 3,000 dollar investment for Roth IRA and 401k. and we will assume a 30% tax rate for both scenarios. $3000x1.09 to the 35th power=$61242, basically 3g's at a 9%growth rate for 35years is $61,242. It would be the same figure for both Roth IRA and 401k. for the 401k, you will save the 30% on $3,000 up front which is $900, then will be required to pay $18,373 in taxes at the end, 30% of $61,242. Vs. the ROth IRA, one will pay the 900$ up front on the $3,000, let it grow for 35 yrs to $61,242, cash out the full $61242 at 60yrs old or later tax free, only having paid $900 in taxes in the beginning on a $58,242 profit. Therefore a Roth IRA is beneficial to a 401K above and beyond the company match. I would encourage spending $20 on the book called Investing for Dummies, great book, it'll be the best 20$ you can spend. Link to comment Share on other sites More sharing options...
HelloNewman Posted November 18, 2004 Share Posted November 18, 2004 I got 3 things working for me which will help out when I retire.... 1) normal SS (obviously) 2) The NYS retirement system- best you can get anywhere 50-60% of your highest average salary last 3 years and depending on years of service- 3% contribution biweekly taken out for 10 years 3) NYS Deferred Comp program...4% taken out biweekly -stock and bond driven...we be 100,000 + when I retire.... Things should work out just fine for me Link to comment Share on other sites More sharing options...
EZC-Boston Posted November 18, 2004 Share Posted November 18, 2004 Actually if tax brackets stay the same and you're in the same marginal bracket when you retire as you are now, the 401k and Roth would work out to be the same. Taxed up front, taxed at the end, it doesn't make a difference mathematically. the formula for compound interest for a single investment is 1.xx(ie. .09= expected rate of return) to the (n)th power (n= number of years invested) x the principle investment. SO lets do a 3,000 dollar investment for Roth IRA and 401k. and we will assume a 30% tax rate for both scenarios. $3000x1.09 to the 35th power=$61242, basically 3g's at a 9%growth rate for 35years is $61,242. It would be the same figure for both Roth IRA and 401k. for the 401k, you will save the 30% on $3,000 up front which is $900, then will be required to pay $18,373 in taxes at the end, 30% of $61,242. Vs. the ROth IRA, one will pay the 900$ up front on the $3,000, let it grow for 35 yrs to $61,242, cash out the full $61242 at 60yrs old or later tax free, only having paid $900 in taxes in the beginning on a $58,242 profit. Therefore a Roth IRA is beneficial to a 401K above and beyond the company match. I would encourage spending $20 on the book called Investing for Dummies, great book, it'll be the best 20$ you can spend. 122721[/snapback] Thanks for doing the hard work for me. Link to comment Share on other sites More sharing options...
TigerJ Posted November 18, 2004 Share Posted November 18, 2004 I have a 403b. Similar rules though. My employer actually contributes more than I do, about 11%. I'm contributing about 5 % now. When my kids get out of college, I'll up that to about 7%, or more likely start a Roth IRA for anything over the 5%. Link to comment Share on other sites More sharing options...
MRW Posted November 18, 2004 Share Posted November 18, 2004 Actually if tax brackets stay the same and you're in the same marginal bracket when you retire as you are now, the 401k and Roth would work out to be the same. Taxed up front, taxed at the end, it doesn't make a difference mathematically. the formula for compound interest for a single investment is 1.xx(ie. .09= expected rate of return) to the (n)th power (n= number of years invested) x the principle investment. SO lets do a 3,000 dollar investment for Roth IRA and 401k. and we will assume a 30% tax rate for both scenarios. $3000x1.09 to the 35th power=$61242, basically 3g's at a 9%growth rate for 35years is $61,242. It would be the same figure for both Roth IRA and 401k. for the 401k, you will save the 30% on $3,000 up front which is $900, then will be required to pay $18,373 in taxes at the end, 30% of $61,242. Vs. the ROth IRA, one will pay the 900$ up front on the $3,000, let it grow for 35 yrs to $61,242, cash out the full $61242 at 60yrs old or later tax free, only having paid $900 in taxes in the beginning on a $58,242 profit. Therefore a Roth IRA is beneficial to a 401K above and beyond the company match. I would encourage spending $20 on the book called Investing for Dummies, great book, it'll be the best 20$ you can spend. 122721[/snapback] Yep, that's true if you invest the same amount, but not if you're investing the same amount pre-tax, which was my example. Link to comment Share on other sites More sharing options...
Alaska Darin Posted November 18, 2004 Share Posted November 18, 2004 I got 3 things working for me which will help out when I retire.... 1) normal SS (obviously) 2) The NYS retirement system- best you can get anywhere 50-60% of your highest average salary last 3 years and depending on years of service- 3% contribution biweekly taken out for 10 years 3) NYS Deferred Comp program...4% taken out biweekly -stock and bond driven...we be 100,000 + when I retire.... Things should work out just fine for me 122836[/snapback] Let's keep wondering why the taxes in NYS are so high. Link to comment Share on other sites More sharing options...
gantrules Posted November 18, 2004 Share Posted November 18, 2004 Let's keep wondering why the taxes in NYS are so high. ---------- NO DOUBT. I get sick of folks around here bitching about NYS taxes but then I see people working for the state who literally BRAG about the pension they get. Why is it that SSI is increasing on how old you have to be to get it but yet state employees only have to serve say 20 years in order to get 50% of their salary? How much in taxes are we paying to retired teachers who get an 66% of their average last 3 years salary which in the area I live in is anywhere between 60K-70K per year plus SSI plus deferred comp? If this was a business it would have been changed LONG ago. Oh BTW my property/school taxes are going up 18% this year. Meaning even with STAR my taxes will be $5000.00 per year with STAR. Without STAR you ask? $5800.00. My house is assessed for $150,000. I have a cousin in Arizona who's house is worth $500K. He pays $2800.00 per year. I know the arguement that my property taxes are going to pay retiree's salaries...but it's this mismanagement that drives me up the wall. Link to comment Share on other sites More sharing options...
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