Start the savings or pay down my student loans?

[noppenbd]

Originally Posted by sweeps

Did you count growth of your pre-tax vs. after-tax dollars? A $15,000 (pre-tax) contribution grows to a much larger value over time than a $12,000 (post-tax) contribution.

Yes, I did. You put in X into a 401k, and .72X into a Roth 401k. If the value of each account grows by a factor of 50, X becomes 50X, and .72X becomes 36X.

The reality is, it is a rare person who socks away enough to be in the 25-28% tax bracket in retirement anyway. You would have to have probably 40K in SS combined with a 3M nest egg to get 120K yearly income in retirement. So 95-99% of people are not going to be in 28% tax bracket in retirement (whether they want to or not).

[LivingAlmostLarge]

If you are in the 28% bracket, it's also likely you would have been making way more than $120k while working!

[jIM_Ohio]

120k for a single person is in 28% tax bracket- for single filers anything over 82,250 of taxable income is taxed at 28% for 2009.

[isthisused]

Originally Posted by jIM_Ohio

will future taxes be higher or will future deductions be lower? There is more than one way for gov't to get their tax revenue.

If a person is in 15 percent bracket the Roth is a great move.
If a person's marginal bracket is 25 percent or higher, I will usually recomend take your deduction NOW and worry about taxes later. That deduction may not always be there.

Those pundits you listen to are still working... they may not be the best people to take retirement advice from...

That is a good point as were the points in your earlier post that somehow I didnt read before my post. I do not think he is eligible at this time for a roth but I do believe the income limit goes away in a couple years so the money could be put into a traditional IRA and then converted after the income limit goes away, could it not?? What about the taxing of social security benefits?

· If you file a federal tax return as an “individual,” and your combined income* is between $25,000 and $34,000, you may have to pay taxes on 50 percent of your Social Security benefits. If your combined income* is more than $34,000, up to 85 percent of your Social Security benefits is subject to income tax.
· If you file a joint return, you may have to pay taxes on 50 percent of your benefits if you and your spouse have a combined income* that is between $32,000 and $44,000. If your combined income* is more than $44,000, up to 85 percent of your Social Security benefits is subject to income tax.

[jIM_Ohio]

Originally Posted by isthisused

That is a good point as were the points in your earlier post that somehow I didnt read before my post. I do not think he is eligible at this time for a roth but I do believe the income limit goes away in a couple years so the money could be put into a traditional IRA and then converted after the income limit goes away, could it not?? What about the taxing of social security benefits?

· If you file a federal tax return as an “individual,” and your combined income* is between $25,000 and $34,000, you may have to pay taxes on 50 percent of your Social Security benefits. If your combined income* is more than $34,000, up to 85 percent of your Social Security benefits is subject to income tax.
· If you file a joint return, you may have to pay taxes on 50 percent of your benefits if you and your spouse have a combined income* that is between $32,000 and $44,000. If your combined income* is more than $44,000, up to 85 percent of your Social Security benefits is subject to income tax.

If your bracket is 28% or higher I would look for tax avoidance more than "tax me now" plans. No need to do a Roth conversion at 28% when you could do the same conversion in retirement at 15% or 25%.

[isthisused]

Originally Posted by jIM_Ohio

If your bracket is 28% or higher I would look for tax avoidance more than "tax me now" plans. No need to do a Roth conversion at 28% when you could do the same conversion in retirement at 15% or 25%.

I intend to max them both out though Im not yet maxxed out on the 401k (15% with 8% match) Do you feel there is an advantage in tax diversification. Some income that is tax deferred and some that are non-taxable?

[noppenbd]

Originally Posted by isthisused

That is a good point as were the points in your earlier post that somehow I didnt read before my post. I do not think he is eligible at this time for a roth but I do believe the income limit goes away in a couple years so the money could be put into a traditional IRA and then converted after the income limit goes away, could it not?? What about the taxing of social security benefits?

· If you file a federal tax return as an “individual,” and your combined income* is between $25,000 and $34,000, you may have to pay taxes on 50 percent of your Social Security benefits. If your combined income* is more than $34,000, up to 85 percent of your Social Security benefits is subject to income tax.
· If you file a joint return, you may have to pay taxes on 50 percent of your benefits if you and your spouse have a combined income* that is between $32,000 and $44,000. If your combined income* is more than $44,000, up to 85 percent of your Social Security benefits is subject to income tax.

If you are relatively young and make average or above income I would assume 85-100% of SS benefits are taxed. Several reasons:

-Numbers you quote above are not indexed for inflation in the tax code, so as inflation rises, more and more people will be above the threshold.
-Tax & SS shortfalls may cause even more taxation of SS, so assume for the worst case.

[jIM_Ohio]

Originally Posted by isthisused

I intend to max them both out though Im not yet maxxed out on the 401k (15% with 8% match) Do you feel there is an advantage in tax diversification. Some income that is tax deferred and some that are non-taxable?

absolutely.
just put the most money where you get the biggest current tax savings at 28 percent fed