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Message
Foregoing Retirement Saving
Posted on 4/12/17 at 4:39 pm
Posted on 4/12/17 at 4:39 pm
Anyone here forego saving for retirement via IRAs/401ks and instead opt to invest in regular brokerage accounts that aren't tax advantaged for retirement? If so what has your experience been?
I've been mulling this over. I like the idea of having money I've invested in the stock market more readily available (sans penalties) at my discretion. I'm already invested in one business partnership and foresee myself investing in many more private business opportunities in the coming years, though no future dealings have been set in stone. I have a day job, I just love the side hustle.
Are the tax advantages to great to be outperformed by the ability to invest in private business ventures? What would it take for you to invest solely in standard brokerage accounts in lieu of IRA/401k contributions? Am I crazy?
TIA
I've been mulling this over. I like the idea of having money I've invested in the stock market more readily available (sans penalties) at my discretion. I'm already invested in one business partnership and foresee myself investing in many more private business opportunities in the coming years, though no future dealings have been set in stone. I have a day job, I just love the side hustle.
Are the tax advantages to great to be outperformed by the ability to invest in private business ventures? What would it take for you to invest solely in standard brokerage accounts in lieu of IRA/401k contributions? Am I crazy?
TIA
This post was edited on 4/12/17 at 4:40 pm
7
Posted on 4/12/17 at 4:41 pm to OMapologist
quote:
Am I crazy?
Yes
Posted on 4/12/17 at 4:44 pm to OMapologist
quote:
Are the tax advantages to great to be outperformed by the ability to invest in private business ventures? What would it take for you to invest solely in standard brokerage accounts in lieu of IRA/401k contributions? Am I crazy?
why not do both if this strikes your fancy?
the tax benefits are pretty awesome. But that is for each to judge.
Posted on 4/12/17 at 4:45 pm to Paul Allen
Thanks for the insight. You've really added a lot to this discussion.
Posted on 4/12/17 at 4:50 pm to OMapologist
I think it really hinges on a few things, maybe even just one.
If you are going to use every dollar you don't put into 401k savings towards present investments then I say its OK. Some of us in life have the balls to do such a thing and come out way ahead. So far, I am not one of those people.
If you end up diverting that cash somewhere else, then I don't know about that.
I still think getting your employer match in the 401k is a must. It is a 100% return and I'm not sure you're going to get that anywhere else.
If you are going to use every dollar you don't put into 401k savings towards present investments then I say its OK. Some of us in life have the balls to do such a thing and come out way ahead. So far, I am not one of those people.
If you end up diverting that cash somewhere else, then I don't know about that.
I still think getting your employer match in the 401k is a must. It is a 100% return and I'm not sure you're going to get that anywhere else.
This post was edited on 4/12/17 at 4:51 pm
Posted on 4/12/17 at 4:50 pm to Hawkeye95
quote:
why not do both
Posted on 4/12/17 at 4:54 pm to Teddy Ruxpin
quote:
I still think getting your employer match in the 401k is a must. It is a 100% return and I'm not sure you're going to get that anywhere else.
I get the logic behind this 100%. And if it weren't for my plan I'd be doing it. The problem is my 401k plan at work is a 25 cent match up to 15% of my salary. 15% of my salary is a lot to throw at a 401k. It would be the majority of my savings/investments.
Posted on 4/12/17 at 5:27 pm to OMapologist
What for? I see zero need to add insight to such an asinine and preposterous question.
Posted on 4/12/17 at 5:30 pm to OMapologist
So a 25% return, again that's great. I suppose you'll have to decide how much h if a 25% return you want to receive vs the risk/reward of not investing in the 401k. That's a personal question for you to answer.
Posted on 4/12/17 at 5:45 pm to Teddy Ruxpin
I pondered this because I was putting more in my brokerage account than my 401k/HSA/IRA. when I sat down with a calculator it seemed really silly to not leverage every tax advantage. Tax free growth is very powerful and the calculator doesn't lie. I'd suggest putting some numbers to it over a long period of time and then decide.
Also, If you are interested in accessing your retirement funds earlier you can backdoor through
your Ira.
Just be honest about the returns you will see with your taxable ventures and put numbers to it
Also, If you are interested in accessing your retirement funds earlier you can backdoor through
your Ira.
Just be honest about the returns you will see with your taxable ventures and put numbers to it
Posted on 4/12/17 at 6:35 pm to OMapologist
I am not familiar with how it works, but I think it is possible to set up a retirement account that purchases rental property. I would assume it could be expanded to other types of business ventures.
Posted on 4/12/17 at 7:03 pm to OMapologist
A guaranteed 25% return is still pretty damn amazing.
Posted on 4/12/17 at 7:39 pm to OMapologist
What's wrong with using a Roth? You can pull out your contributions at any time without any penalty, just like a regular brokerage account.
Posted on 4/12/17 at 8:27 pm to OMapologist
quote:
The problem is my 401k plan at work is a 25 cent match up to 15% of my salary. 15% of my salary is a lot to throw at a 401k. It would be the majority of my savings/investments.
Let's do the math. I'm going to assume a 100k, ignore inflation and raises(for simplicity), and give you a 30 year time horizon with 25 years of retirement and a tax rate of 30% while working, 20% in retirement and 20% in your taxable account and 30% if you take the money and invest in a business as you'll be back to paying higher tax rates.
So if you are making 100k and participate in the 401k, thats $18,750 bucks with the company match!If you don't, you are left with measly $10,500 after taxes on your 15k. Yikes, not looking good.
In the 401k, after 30 years of 7% returns you will have $1,771,140! We will assume a more conservative 3% return in retirement years as you switch to more fixed income investments. On a 25 year drawdown you can take out 79k after taxes/year.
To achieve the same 79k drawdown for 25 years retirement in a taxable account you'll need to start with $1,420,592. Since you are only saving $10,500 after taxes, you'll need to average 11.2%(pre-tax) return to hit your matching nest egg size if you are only taxed capital games. If invested in a business and your taxed at 30%, it will be need to be a 12.7% return pre tax.
If you average 7% returns pre-tax on your taxable account, you'll only be able to draw $43,000/year for 25 years.
TLDR
401k max with employer match
79k drawdown in retirement for 25 years
taxable account
43k drawdown in retirement for 25 years at same return(7%)
Return needed to match 401k drawdown @20% tax rate - 11.2%
Return needed to match 401k drawdown @30% tax rate - 12.7%
This post was edited on 4/12/17 at 8:29 pm
Posted on 4/13/17 at 9:12 am to OMapologist
Why wouldn't you want to use a Roth in this situation?
Posted on 4/13/17 at 9:14 am to OMapologist
quote:
15% of my salary is a lot to throw at a 401k.
I found the problem. This is a great move by your company. 15% should be the standard number companies should push their employees to put back. If you do 15% when you get your first job, you can retire early and likely never have to increase your saving percentage as you get older.
Posted on 4/13/17 at 9:57 am to notsince98
I don't have a problem with saving 15% of my gross salary. In fact, my goal is to save 20% of my net pay. The products are basically the same in my case.
My hang up is that this becomes all of my savings. 25% guaranteed return is great, no doubt. But tieing up 90%+ of my allotment for savings/investments is a tough pill to swallow when you want to be able to invest in private business ventures along the way to retirement.
My hang up is that this becomes all of my savings. 25% guaranteed return is great, no doubt. But tieing up 90%+ of my allotment for savings/investments is a tough pill to swallow when you want to be able to invest in private business ventures along the way to retirement.
Posted on 4/13/17 at 10:06 am to OMapologist
quote:
It would be the majority of my savings/investments.
I get it and understand where you are coming from. Actually you ask a good question. Many do NOT have the money to match 401k (especially max it), max IRA, and then have a bundle to put into RE, tax liens, lending, brokerage accounts etc.
I will guess your 401k has crap funds and no ability to invest in stocks right?
Posted on 4/13/17 at 10:13 am to OMapologist
quote:
But tieing up 90%+ of my allotment for savings/investments is a tough pill to swallow when you want to be able to invest in private business ventures along the way to retirement.
Find a 2nd source of income.
Posted on 4/13/17 at 10:17 am to barry
You realize with a 25% match and 25% tax bracket any money you add will basically have a 50% gain the first year? Lol, you aren't going to beat that long term.
As said, Roth contributions can be withdrawn with zero implications at any time.
As said, Roth contributions can be withdrawn with zero implications at any time.
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