Using 401k loan for another investment. (payments, vehicle, increase, convert)
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12% of your income goes into social security on your behalf while you work. you expect some return when you retire and you also expect certain insurance benefits. it sounds like an investment to me. its a bad one because the government can ********* on it at any time.
social security is a program in which current social security taxes pay for current retiree benefits. you are not getting any return on the taxes you pay into the system today, because they are used to fund the benefits of today.. it is not an investment for your own retirement, it is a tax on the current workforce to provide a basis of retirement income for the current retirees.
this simple concept seems to elude critics of social security all the time.
i think its a fact that its a bad investment. but i agree it probably benefits stupid people who otherwise wouldnt save for themselves. those numbers from that fidelity study dont look impressive to me, plus it appears they will then have to pay income taxes from that 216k.
especially with a longer time horizon to when you can withdraw, the risks of the tax deferred account far outweigh any potential benefits.
"i think it's a fact" is basically a pompous way of trying to make one's opinions sound like facts. it's not a fact. it could very well be a bad idea to invest money now and pay taxes later. it could also be a bad idea to pay taxes now instead of later. the FACT is...there are positive and negative sides to both, and until one reaches retirement age, it's impossible to know for a FACT that either person is right.
and why shouldnt they pay taxes on that money , that money is still un-taxed income. i hate to break it to you but that money you put in your investments outside the tax deferred plan you payed taxes up front on as well as lost the use of that tax money you paid from growing more money.
your also paying taxes on interest and dividends yearly reducing further the money you have working for you.
the only un-known is future taxes. quite frankly when i entered the work force 40 years ago taxes were rising, inflation was surging and it was a given higher taxes were a lock.
SURPRISE! 40 years later im paying the lowest tax rates in history on my income. thank god i took advantage of those tax deductions every year as if we had roth ira's and roth 401k's i would have been the first guy in and i would have paid in a ton of taxes more then i actually will. i still cant believe that after 40 years my taxes are now this low percentage wise and what i can pass through at lower and lower tax brackets each year.
i think every obstacle that can be put in front of someone hitting their retirement money should be put there. i would even vote to do away with a 72t election. the same as we cant tap social security money except under the most dire extremes our retirement money should be sacred as well.
taxes being the great un-known really require both tax defered and taxable accounts to spread the risk you will be wrong.
even if taxes rise most of america will still be in lower brackets with nooooo pay checks.
ask yourself this ? on 35k how much in tax would you pay at your marginal rates now with paychecks ? im at about 1/3 the amount or 11,000 with federal , ny state ,and nyc local .
know what a 65 year old retired couple with the extra exemption they get pays when the pay checks stop ? about 1400.00 bucks if they live in a no or low tax state.
most including myself would have most likely found a reason to siphon some away if it wasnt for the fact id loose about 1/2 in taxes and penalty.
as far as fund choices in 401k's: when i started my job and was presented with the choices i wasnt thrilled. they were expensive in comparison to others and i had a hard time coming up with a well diversified mix.
well after contacting those in power i was invited to a meeting to talk about it.
they felt comfortable with the fact i knew my stuff and put me on the investment team.
within one year i had them agreeing to switching to fidelity and we now have good low cost choices in our plan. how do i know they are low cost? since my portfolio is one big mix in and outside my defered plan i own the same funds in my taxable account and can easily compare returns dollar for dollar.
its not that folks are stuck with their choices in plans its that they dont makee an effort to get those in power to do so to change things.
Last edited by mathjak107; 04-09-2011 at 04:37 AM..
"i think it's a fact" is basically a pompous way of trying to make one's opinions sound like facts. it's not a fact. it could very well be a bad idea to invest money now and pay taxes later. it could also be a bad idea to pay taxes now instead of later. the FACT is...there are positive and negative sides to both, and until one reaches retirement age, it's impossible to know for a FACT that either person is right.
i do believe someone could quantify the risks involved and determine it to factually be a bad investment. im just not sure if someone has quantified it. its like taking a junk bond and getting 3% and a treasury bond and getting 2.75%. you are getting a .25% premium for the added risk on the junk bond, but if that risk premium isnt enough, would that junk bond be considered (in fact) a bad investment? i think so. so i think if you quantify the risks involved in a tax deferred account, you would find it to be a bad investment compared to other options.
so thats what i mean by i believe its a fact. i just dont have the numbers at hand to prove it. so i cant say i know its a fact.
and why shouldnt they pay taxes on that money , that money is still un-taxed income. i hate to break it to you but that money you put in your investments outside the tax deferred plan you payed taxes up front on as well as lost the use of that tax money you paid from growing more money.
im not saying you shouldnt pay the taxes. im saying that by agreeing to pay them 30 years from now, you are taking on the additional risk of higher tax rates 30 years from now as opposed to paying the current rate that you know.
you didnt lose the opportunity to grow more money. thats a hilarious trick that investment professionals use to trick people into thinking its a good idea. "you can grow the money tax free" along with that, your tax liability grows also so its a wash on that front. what you need to benefit is a lower tax rate in retirement. i dont see that for me.
i just saw something i wasnt aware of. capital gains in a tax deferred account are taxed as ordinary income. so thats a tremendous hit you would take today on long term capital gains taxes.
Last edited by CaptainNJ; 04-09-2011 at 02:42 PM..
im not saying you shouldnt pay the taxes. im saying that by agreeing to pay them 30 years from now, you are taking on the additional risk of higher tax rates 30 years from now as opposed to paying the current rate that you know.
you didnt lose the opportunity to grow more money. thats a hilarious trick that investment professionals use to trick people into thinking its a good idea. "you can grow the money tax free" along with that, your tax liability grows also so its a wash on that front. what you need to benefit is a lower tax rate in retirement. i dont see that for me.
i just saw something i wasnt aware of. capital gains in a tax deferred account are taxed as ordinary income. so thats a tremendous hit you would take today on long term capital gains taxes.
key word here is what you just said"what you need to benefit is a lower tax rate in retirement. i dont see that for me."
you dont see it for you but your making statements like its for everybody.
as far as capital gains a good constructed portfolio has the income generating stuff in the confines of the ira or 401k since that is taxed at regular rates regardless. equities do best outside the confines of the ira where they benefit from capital gains rates..
if you google around you will find studys that show big differences in the bottom line when contstructed that way.
having interest and dividends taxed and siphoned off in your taxable account when it can be totaly tax free in a roth is not the way to do it. a roth 401k is the nicest way.
think about it: the roth is taxed up front and all dividends and interest are tax free. merely sticking the same money taxed up front and put in your taxable account has taxes due on the interest and dividends and that money would be never taxed in a roth ever..
its not the same choice as tradional ira/401k or roth... that can be debatable as to which yields more but a roth trumps a taxable account everytime because they are both funded with after tax dollars and one grows tax free and one doesnt.
its the same after tax cost to throw the money in a roth ira as it is to fund your taxable account.. as long as you qualify your always better off funding a roth than a taxable account by far.
Last edited by mathjak107; 04-09-2011 at 03:34 PM..
key word here is what you just said"what you need to benefit is a lower tax rate in retirement. i dont see that for me."
you dont see it for you but your making statements like its for everybody.
i have said that people who are closer to retirement are in a less risky position. however, with the current state of the economy things can be changing within a couple of years or faster.
i understand roth is better than a regular 401k or IRA but that isnt an option for me. there are still risks involved but there is actual upside unlike traditional deferred tax accounts. its not really an option for me though. i have heard that roth 401k and higher limits on IRA's have happened but i havent looked into it. i dont like the government telling me when i can and cant access my own money. but like i said, at least with a ROTH there is actual upside.
Not only do NOT borrow on your retirement account today. Never, ever borrow on your 401K. Really, it's that simple.
No need to thank me in the future.
Your advice is right on! When they are eating Ramen noodles in retirement they will wish they had listened!
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