Jon in Pasadena Posted October 27, 2008 Share Posted October 27, 2008 Of course, after a 401(k) is fully funded, a Roth is great idea. That's how I roll. Link to comment Share on other sites More sharing options...
Chef Jim Posted October 28, 2008 Share Posted October 28, 2008 Of course, after a 401(k) is fully funded, a Roth is great idea. I disagree. If you qualify for the Roth max that out. Here's why. We have no idea where taxes are going to be when we retire (depending on age of the person) but I think we can all agree that they are historically low right now. But your 401k is going to be taxable when you distribute regardless of whether you're talking income or cap gains. But when you get hit with your tax bill you're going to have to pull money from someplace to pay those taxes. For you, you'll have to pull them from your 401k (or IRA Rollover). What does that do? It creates more taxes. I plan on having my clients use their Roth IRAs to pay their taxes from. It will vary from year to year, but the more pools of money to pull from at retirement, some taxable, some tax free, helps you control your taxes better at retirement. If all you have is IRA money at retirement you have no control. You're at the mercy of the government and their taxes. Most people's income will drop at retirement so anytime you can reduce your taxes is a good thing. Link to comment Share on other sites More sharing options...
bills_fan Posted October 28, 2008 Share Posted October 28, 2008 I disagree. If you qualify for the Roth max that out. Here's why. We have no idea where taxes are going to be when we retire (depending on age of the person) but I think we can all agree that they are historically low right now. But your 401k is going to be taxable when you distribute regardless of whether you're talking income or cap gains. But when you get hit with your tax bill you're going to have to pull money from someplace to pay those taxes. For you, you'll have to pull them from your 401k (or IRA Rollover). What does that do? It creates more taxes. I plan on having my clients use their Roth IRAs to pay their taxes from. It will vary from year to year, but the more pools of money to pull from at retirement, some taxable, some tax free, helps you control your taxes better at retirement. If all you have is IRA money at retirement you have no control. You're at the mercy of the government and their taxes. Most people's income will drop at retirement so anytime you can reduce your taxes is a good thing. Never thought of that, great idea. Unfortunately, I don't qualify for the Roth. The traditional IRA does not permit tax-free withdrawals right? Just tax free growth? Link to comment Share on other sites More sharing options...
Chef Jim Posted October 28, 2008 Share Posted October 28, 2008 Never thought of that, great idea. Unfortunately, I don't qualify for the Roth. The traditional IRA does not permit tax-free withdrawals right? Just tax free growth? Correct on the traditional IRA. If you are not deducting the contributions (which if you have a 401k and don't qualify for a Roth you're making too much money for that too) you have zero basis in your IRA so it's 100% taxable when withdrawn and subject to RMDs. However here's another tax free option. Cash value life insurance. Link to comment Share on other sites More sharing options...
bills_fan Posted October 28, 2008 Share Posted October 28, 2008 Correct on the traditional IRA. If you are not deducting the contributions (which if you have a 401k and don't qualify for a Roth you're making too much money for that too) you have zero basis in your IRA so it's 100% taxable when withdrawn and subject to RMDs. However here's another tax free option. Cash value life insurance. Meaning a whole life policy, paying an annuity over time. That annuity is tax free? Link to comment Share on other sites More sharing options...
IDBillzFan Posted October 28, 2008 Share Posted October 28, 2008 Meaning a whole life policy, paying an annuity over time. That annuity is tax free? Please insert $125 for an additional hour of advice. Link to comment Share on other sites More sharing options...
Chef Jim Posted October 28, 2008 Share Posted October 28, 2008 Meaning a whole life policy, paying an annuity over time. That annuity is tax free? I don't like whole life. Universal life is better, it's flexible whereas whole life is not. You can borrow the cash value tax free. Many policies have "wash loans" after a certain period of time, say ten years, where they credit the interest rate back to your cash value. Now this will reduce your death benefit but when you're retired maybe the death benefit it not that important any more. Getting a policy while you're young and funding it properly for many years having a six figure cash value is very possible. And the returns are fixed. Only part of our clients portfolios making any money right now. Link to comment Share on other sites More sharing options...
Chef Jim Posted October 28, 2008 Share Posted October 28, 2008 Please insert $125 for an additional hour of advice. $125?? That's just to accept the damn phone call. Link to comment Share on other sites More sharing options...
bills_fan Posted October 28, 2008 Share Posted October 28, 2008 I don't like whole life. Universal life is better, it's flexible whereas whole life is not. You can borrow the cash value tax free. Many policies have "wash loans" after a certain period of time, say ten years, where they credit the interest rate back to your cash value. Now this will reduce your death benefit but when you're retired maybe the death benefit it not that important any more. Getting a policy while you're young and funding it properly for many years having a six figure cash value is very possible. And the returns are fixed. Only part of our clients portfolios making any money right now. We may be talking further. Link to comment Share on other sites More sharing options...
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