Just seeking some thoughts on this... I know the advantages of 401ks, IRAs etc. This is kind of a speculative question...

With our country's mounting debt and one of the most viable means of working that down is to raise taxes (UK is already at 50% for its high end earners) does it make sense to just pay the tax as you go and invest money as cash? My fear is I sock all this money in tax deferred retirement accounts and 25 - 30 yrs from now when I go to pull it out, I have an effective tax rate of 50% or more vs paying my effective rate of 28% now and just growing with the increased rates over the years.

any thoughts around this?

tia

that's the million dollar question.

in my opinion, just as you're diversified in your what you're invested in across your portfolio, you should be diversified with regards to after tax vs tax deferred accounts as well.

Like the poster above said, diversifying may be the best bet. Personally, I still have at minimum 35 years before I retire, and looking back historically, I don't see how tax rates are ever going to be as low as they are now again, so I'm paying it all now. I plan to start diversifying in a couple of years when I make more money and hopefully the future is at least a little more certain (although I guess that never really happens).

Correct me if i am wrong, but for 99% of us isn't the only way to pay tax now on retierment monies via Roth IRAs???

I have the option of a Roth or a traditional 401k on my plan. Do most people not have that option?

Well, I think Roth is an option yes, but I'm kind of talking about saving straight cash. Money that I have 100% control over (more or less) Money not subject to any government rules.

Also, not everyone is eligible to contribute to a Roth.

I agree with your initial assertion that the tax rate will continue to increase as well as the fact that you will most likely be in a higher income bracket when you retire than you are right now. Because of this, I plan on investing in a Roth IRA after any matching is done in my 401k. The problem comes when the government decides that they want to tax those tax free earnings. Based on the info we have right now, I am going to play the tax free growth game before tax deferred but I have a hunch that the rules that apply to retirement accounts right now will not be in effect when I retire in 35 years.

No I would not say Roth 401ks are all that common yet. And lots of us make too much to contribute to the Roth IRA. Although I could convert this year I decided taxes 35+ years in the future are too unpredictable to pay more now.

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in my opinion, just as you're diversified in your what you're invested in across your portfolio, you should be diversified with regards to after tax vs tax deferred accounts as well.

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i agree with this. do half and half until something is maxed out.

just remember, the more you put in non-qualified investments, the more investment income you will have as well. so, if you can do a ROTH, then do it. tax free investing is always the way to go if possible. and if you are out of income limits, this year you can convert an unlimited amount of IRA assets to ROTH. i would recomend that if possible.

http://www.dallasnews.com/sharedcontent/dws/bus/columnists/pyip/stories/DN-moneytalk_19bus.ART.State.Edition1.3dad38c.html
Kiyosaki thinks so. But he's an idiot.

Talk to your advisor or CPA about converting to a Roth this year while the AGI cap is waived. Hint, pay the taxes from another source. You can even spread it out over the next 2 years (the tax bill that is).

Is it valid to have a concern that 20 - 30 yrs from now government will decide that there needs to be a special tax on accounts defined as retirement accounts, or changing of the rules/laws, i.e.

--extending the age at which you can remove money from your accounts coupled with an increased penalty for taking money out early.

--a special "low tax" say 2 - 5% annualy on tax deferred earnings.

--or the ridiculous super paranoia of govt taking over all retirment accounts "for the greater good"


I find myself truly not trusting government, and part of me feels like it may be best to just not tie up my money (besides what is already tied up) in these restricted accounts. I like hearing what others think.

Your company match has to go to a traditional so I put my contributions toward the Roth 401k. Automatic diversification.

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Is it valid to have a concern that 20 - 30 yrs from now government will decide that there needs to be a special tax on accounts defined as retirement accounts, or changing of the rules/laws, i.e.

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It is to me which I chose not to convert over $100K I could have to a Roth this year as I have 30 years until retirement. I surely think it is possible that sometime between now and then that we will again fall under the income limit for conversion and it will cost less to convert then. 30 years is just a LONG WAY out into the future to voluntarily pay those taxes now. But I have no crystal ball FWIW.

I am with you all on the 'double tax'. There is nothing to say the government won't decide to add an extra tax in the future.

There's also nothing saying that they will double tax, and that the top bracket won't be 80-90% in the future. It's all a crapshoot.

The pols are seeing to it that anything that you do with respect to the future is a guseeing game. One thing that does make sense for now and for the distant future is the Roth IRA, expecially for those in low tax brackets who are moving on up. As for traditional IRA's if no company match, it might be best to have an investment account, manage it well, invest in good stocks and bonds, hold a year or more and get gains into long-term capital gains mode. But who knows when and how much the Dems will eventually increase LT capgain tax rates? And who knows what the Dems have in mind for IRA, (401)k and similar account with respect to tax rates?

These knuckleheads have created a system that is so uncertain that it's hard to know what's best. What a mess created by incompetents! But the Roth is a great deal for the long-term, expecially for the young and those in mid-life.

Clean House in November.

Great discussion. I've been considering this too.

I have the option of traditional or Roth 403b. Like others said, the company match automatically goes traditional. I'm betting on taxes going up so I'm putting more into Roth but I put a small percentage pre-tax because I'm about $3000 over a cutoff to be in the next tax bracket. I need the pre-tax witholding to offset that.

Be sure to consider your tax bracket now and like everyone said who know what the rules and taxes will be in 30 years.

Kiyosaki cracks me up. I heard him talling on the radio the other day about how he had recently paid $45 million for a gold course community valued at $260 million. So how many of those $99 tickets did you have to sell to finance that? I think his book was an interesting read and does have SOME merit. I am still of the opinion that he made most of his money by selling his books. On the radio he said that the did not advocate flipping houses. Half of the examples in his books were flipping houses. Kiyosaki does not seem to understand that the majority of Americans are too undisciplined with money to save any other way besides a 401K. Most do not have tens of thousands of dollars laying around to invest in oil and gas leases. However, most can take a few percent out of their paycheck especially if the company they work for is matching.

Will taxes go up, or down in the future...

Seems to me, hedge bets and do some of both.

I believe this is a great question from the OP. Hard to trust the gov't at all these days. Cash out of everything...buy gold and silver...and stash underground.

Just kidding...maybe. I think diversity is key. Depends on your situation. I am 31 and only buying Roth and even converted some Traditional to Roth this year. My company contributions are towards Traditional. We also refinanced into a 15 yr mortgage last year. So we have other tax breaks from home ownership. When this goes away I will consider traditional or some other options to lower taxable income.