YBPGuide - Latest Comments in The Terrible Truth About the 401(k)

Re: The Terrible Truth About the 401(k)

Fredric — Mon, 08 Oct 2007 20:05:38 -0000

greg's theories confirmed on cnn.

http://money.cnn.com/2007/10/08/pf/expert/expert1.moneymag/index.htm?section=money_pf

Re: The Terrible Truth About the 401(k)

UMO — Fri, 05 Oct 2007 14:41:09 -0000

I think the point everyone is missing is this. When you retire and take out money it is taxed as income--just like if you were working. The difference is that you get taxed on the amount you take out for that year. For example: I may have $500,000 in my retirement account when I turn 60. If I take out $50,ooo to pay my expenses for the year then I am taxed on that $50,000 not on the $500,000 in my account. So the $50,000 you take out for that year determines your tax bracket. NOT the $500,000 in your retirement account. Ya dig?

Re: The Terrible Truth About the 401(k)

Fredric — Fri, 05 Oct 2007 13:43:51 -0000

greg, i think i understand what you're implying. essentially, since tax is based on a percentage of your income, it makes sense to want to pay the least amount over your lifetime. you won't be doing that if you defer taxes when you make less and pay taxes when you make more.

the other half of this story, which is something i'm sure you'll touch on, is that the best alternative for ybp's is a roth. you pay taxes now for the money that you contribute to the plan, but when you retire, all of the income from that plan is tax free. assuming you're in a higher bracket, you'll actually be paying less taxes.

umo, i agree. savings accounts get the double, but roth ira's don't.

the only dilemma with not utilizing your 401k is that you're missing the free money aspect of your employer match.

maybe the analysis of taxes early vs. taxes later vs. dividends from free 'employer contributed' dollars is the third part that can be analyzed. maybe that is what you're alluding to at the end of the article?

Re: The Terrible Truth About the 401(k)

UMO — Fri, 05 Oct 2007 12:57:40 -0000

I'm not so sure I agree with anything you wrote. The problem with not contributing to a tax-deferred retirement plan is twofold. First contributing to a tax-deferred retirement plan lowers your current taxable income(which you acknowledged) secondly and probably more importantly is that if you put the money into a regular taxable account you would have to pay taxes on the growth of those dollars every year. So you get the double tax whammy. Also without forced savings, most people would not contribute at all. Our national savings rate is already negative and we ALL know that social security probably won't be there for us. Advising people to not contribute to a retirement plan is just bad, bad, bad. I'm not even sure what you were talking about when it comes to the 30 percent fees??