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re: 401k - Putting in more than the company match pros and cons
Posted on 6/25/22 at 8:06 am to thunderbird1100
Posted on 6/25/22 at 8:06 am to thunderbird1100
Thanks for the info.
But the work 401k plus the work Roth 401k still max out at the irs annual max correct?
But the work 401k plus the work Roth 401k still max out at the irs annual max correct?
0
Posted on 6/25/22 at 4:21 pm to KillTheGophers
quote:
The con is the taxes due on distribution - many people are not prepared for this when the RMDs start calling.
They take the taxes out when you do the RMD.
For many if not most people, they will be in a lower bracket when they get the RMD.
Maybe I don’t understand what you are saying?
Posted on 6/26/22 at 7:26 am to makersmark1
That may be true, but keep in mind tax cuts are expiring in a few years, so tax brackets are likely to be higher. Also, you need to consider what happens when a spouse passes away. It’s quite possible you could move from Married Filing Jointly status to single Filer status, and the tax threshold drops significantly, while the RMD will continue to increase.
Posted on 6/26/22 at 11:48 pm to notsince98
quote:
The top end of 12% is around $84k/yr. Add on the Standard deduction of $25k and that puts the yearly income around $109k/yr. That is way more income that I would need at this point, so we may not go that high but it is my worst case scenario. So at $109k/yr i'd have an effective tax rate of 11%.
And if you supplement your income with taxable brokerage LTCG it's even less.
I feel like a lot of people don't realize that. If you are MFJ you don't pay a dime on the first 81k of LTCG.
So if you have a fat brokerage account that you've built over the years you can take out 106k before paying any federal taxes.
Posted on 6/27/22 at 1:42 am to JohnnyKilroy
The zero LTCG bracket seems to be overlooked by most. Everyone I ever mention that strategy to looks at me like I'm making shite up and it can't be true.
Even better, since only the gains are taxed you can actually pull much more including basis out without paying a dime of LTCG.
And if you dont need the $ that year you can harvest LTCG and reinvest to establish higher basis.
Drawing from Roth IRA contributions that dont count towards income will give more room to take advantage of zero LTCG on taxable.
Even better, since only the gains are taxed you can actually pull much more including basis out without paying a dime of LTCG.
And if you dont need the $ that year you can harvest LTCG and reinvest to establish higher basis.
Drawing from Roth IRA contributions that dont count towards income will give more room to take advantage of zero LTCG on taxable.
Posted on 6/27/22 at 7:17 am to JohnnyKilroy
quote:
So if you have a fat brokerage account that you've built over the years you can take out 106k before paying any federal taxes.
The majority of my clients have a federal and state effective tax rate that is sub 10%.
It is quite difficult for the average person to have a higher effective rate in retirement than they do while working. We do try to aggressively wind down pretax accounts, but mainly for estate purposes.
Posted on 6/27/22 at 7:39 am to JohnnyKilroy
quote:
I feel like a lot of people don't realize that. If you are MFJ you don't pay a dime on the first 81k of LTCG.
One thing to clarify is that assumes you have literally $0 income from anything other than long term capital gains.
If you have income from job/side hustle, a pension, take pre-tax 401k/IRA distributions, SS, capital distributions from an ETF/MF, dividends, etc, that eats into your $80k limit for no tax on LTCG.
There is a good chance if your brokerage account is big enough to utilize it as your primary source of income for the majority of your retirement timeline, then it will be spinning off some serious dividends as well.
Posted on 6/28/22 at 10:52 am to bod312
No need to assume "literally zero income other than LTCG." Take this example for feasible use case
$25900 standard deduction + $83550 = $109450 before LTCG kicks in.
$70k (pension, SS, other income)
$15k dividends ($1M in VTI 1.5% yield)
Leaves $24450 of potential LTCG harvesting at zero rate.
Let's just say for simplicity's sake that I'm selling shares that have doubled in value.
I could have $70k + $15k + $24450 LTCG + 24450 basis for an annual $133,900 before LTCG kicks in.
If selling shares that haven't appreciated as much that number could be much higher based in a higher basis.
Meanwhile assets in tax advantaged 401k and IRAs continue to grow while drawing down at a safe withdrawal rate of total portfolio. If it isn't enough to live comfortably, could always draw a bit from Roth contributions or even borrow against taxable portfolio at very favorable rates. (Or just pay 15% LTCG on excess draw) Tell me where this is incorrect or not feasible.
$25900 standard deduction + $83550 = $109450 before LTCG kicks in.
$70k (pension, SS, other income)
$15k dividends ($1M in VTI 1.5% yield)
Leaves $24450 of potential LTCG harvesting at zero rate.
Let's just say for simplicity's sake that I'm selling shares that have doubled in value.
I could have $70k + $15k + $24450 LTCG + 24450 basis for an annual $133,900 before LTCG kicks in.
If selling shares that haven't appreciated as much that number could be much higher based in a higher basis.
Meanwhile assets in tax advantaged 401k and IRAs continue to grow while drawing down at a safe withdrawal rate of total portfolio. If it isn't enough to live comfortably, could always draw a bit from Roth contributions or even borrow against taxable portfolio at very favorable rates. (Or just pay 15% LTCG on excess draw) Tell me where this is incorrect or not feasible.
This post was edited on 6/28/22 at 10:55 am
Posted on 6/28/22 at 11:14 am to TorchtheFlyingTiger
quote:
No need to assume "literally zero income other than LTCG." Take this example for feasible use case
Your example is correct and backs up what I said but in much more detail. This is however not what JK said. His post said:
quote:
If you are MFJ you don't pay a dime on the first 81k of LTCG.
That would imply that regardless of any other income stream you pay 0 taxes on your first $81k of LTCG. That is not true if you have other income streams. Your example points to a scenario where you would only get $24k at 0 rate. Realistically if you made $120k of income and then made $10k of LTCG you would owe tax on that $10k (at LTCG rate).
I just think JK's response is misleading and could lead people to make decisions based on the thought that the first $81k of LTCG is always tax free.
quote:
Tell me where this is incorrect or not feasible.
Everything you said is correct to my knowledge but what JK said is not correct except only in a specific scenario.
Posted on 6/28/22 at 11:26 am to bod312
Ok, fair enough. Hopefully the real world example makes it clearer for anyone that misunderstood.
Wish I had understood sooner, I may have have squeezed out some LTCG harvesting in low taxable income years.
Wish I had understood sooner, I may have have squeezed out some LTCG harvesting in low taxable income years.
Posted on 6/28/22 at 2:21 pm to Free888
quote:
That may be true, but keep in mind tax cuts are expiring in a few years, so tax brackets are likely to be higher. Also, you need to consider what happens when a spouse passes away. It’s quite possible you could move from Married Filing Jointly status to single Filer status, and the tax threshold drops significantly, while the RMD will continue to increase.
There is a widow scenario.
EDIT: never mind, it requires a dependent.
This post was edited on 6/28/22 at 2:24 pm
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