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Question about a pension plan and income during retirement
Posted on 1/8/21 at 11:37 am
Posted on 1/8/21 at 11:37 am
Say one were to have a pension plan that payed their entire salary after retirement as well as had money invested into a tax deferred acount.
When retirement time comes, and you pay your tax rate at the time of retirement:
Does the money from your pension count as “income” and basically the same (or more) than what you made at time time of placing the money in the traditional 401K rendering the “tax deferral” useless or is it still beneficial?
Is a personal roth 401K is a better choice?
When retirement time comes, and you pay your tax rate at the time of retirement:
Does the money from your pension count as “income” and basically the same (or more) than what you made at time time of placing the money in the traditional 401K rendering the “tax deferral” useless or is it still beneficial?
Is a personal roth 401K is a better choice?
This post was edited on 1/8/21 at 11:42 am
Posted on 1/8/21 at 2:50 pm to tigersint
I’m not a money expert, but I have both a pension and 2 different deferred Comp plans. I am retired and the money that I withdraw is taxed at my current tax rates. In fact, one of the deferred plans automatically withholds 20% of the amount withdrawn for federal taxes. I wish I had put some of the money during my working years in a Roth. Hope that helps.
Posted on 1/8/21 at 2:54 pm to tigersint
On a related note Louisiana doesn't tax public pensions.
Posted on 1/8/21 at 3:05 pm to tigersint
Yes. You’ll end up taxed on that money at a higher rate than you would have if you never deferred it
Posted on 1/9/21 at 2:46 am to tigersint
Yes you will pay taxes on the withdrawals from a tax deferred retirement accounts at your then current marginal tax rate.
It is always good to have both tax free, like a ROTH, as well as taxable money (IRA, 401k, 403b, etc) that can be used during retirement. Additionally, you should have after-tax investments which can be sold and withdrawn only owing the tax on gains at capital gains rate(this will probably rise in Biden tenure).
Tax brackets are fluid, depending on Congress' whims and the US economy. Tax rates will probably be raised, at least for the next two years, but typically cycle up and down.
If you have all three types of money you can supplement your retirement pension income most effectively by blending your account withdrawals to get he most after tax income based on that year's tax brackets. In other words, make decisions each year based on need, marginal tax brackets and rates, so that you take the maximum amount needed to satisfy spending needs while remaining in the lowest bracket. While tax rates are tiered, you still would do better if you plan carefully and avoid putting yourself into a higher bracket.
Knowing that brackets will probably come down, and rates go up in Biden-Harris times, 2020 was the time (if you were already retired) to take extra money out of taxable accounts (tax-deferred or after tax)and stockpile it to save tax payments in future years.
It is always good to have both tax free, like a ROTH, as well as taxable money (IRA, 401k, 403b, etc) that can be used during retirement. Additionally, you should have after-tax investments which can be sold and withdrawn only owing the tax on gains at capital gains rate(this will probably rise in Biden tenure).
Tax brackets are fluid, depending on Congress' whims and the US economy. Tax rates will probably be raised, at least for the next two years, but typically cycle up and down.
If you have all three types of money you can supplement your retirement pension income most effectively by blending your account withdrawals to get he most after tax income based on that year's tax brackets. In other words, make decisions each year based on need, marginal tax brackets and rates, so that you take the maximum amount needed to satisfy spending needs while remaining in the lowest bracket. While tax rates are tiered, you still would do better if you plan carefully and avoid putting yourself into a higher bracket.
Knowing that brackets will probably come down, and rates go up in Biden-Harris times, 2020 was the time (if you were already retired) to take extra money out of taxable accounts (tax-deferred or after tax)and stockpile it to save tax payments in future years.
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