Comments on: 401k: Roth vs. Traditional http://dqydj.net/401k-roth-vs-traditional/ The Intersection of Economics, Politics, and Personal Finance Thu, 09 Feb 2012 17:28:00 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: PKamp3 http://dqydj.net/401k-roth-vs-traditional/comment-page-1/#comment-80 PKamp3 Tue, 07 Jul 2009 05:36:57 +0000 http://dqydj.net/?p=5#comment-80 Hey Dave, Thanks for posting. Yeah, it's definitely not clear what I meant in that paragraph... it only works if there is other income involved. I was trying to say you withdrew it at the margin (just as the money is invested at the margin, I assume you don't invest 100% of you make) but I failed... I'll add a note above. Thanks for the links! -Paul Hey Dave,

Thanks for posting. Yeah, it’s definitely not clear what I meant in that paragraph… it only works if there is other income involved. I was trying to say you withdrew it at the margin (just as the money is invested at the margin, I assume you don’t invest 100% of you make) but I failed… I’ll add a note above. Thanks for the links!

-Paul

]]> By: Dave http://dqydj.net/401k-roth-vs-traditional/comment-page-1/#comment-78 Dave Tue, 07 Jul 2009 03:13:49 +0000 http://dqydj.net/?p=5#comment-78 In the example above, it seems that you are calculating the distributions at a flat tax rates, at 28% and 9.55% respectfully, rather than using marginal tables. Using the 2009 tax tables (from http://www.finance.cch.com/sohoApplets/TaxMargin.html) the 28% bracket doesn't only applies to amounts in excess of $82,250. Using the marginal tax rate calculator at the referenced link shows that the federal tax liability on $53,516 is $6829 not $14,984.50 as you list. The California tax due on $53516 is $2671 per http://www.ftb.ca.gov/forms/2008/08_540tt.pdf Total tax due of $9500 on the distributions on the traditional 401(k) Not bothering to correct your other tax calculations but they are wrong as well. In the example above, it seems that you are calculating the distributions at a flat tax rates, at 28% and 9.55% respectfully, rather than using marginal tables. Using the 2009 tax tables (from http://www.finance.cch.com/sohoApplets/TaxMargin.html) the 28% bracket doesn’t only applies to amounts in excess of $82,250.

Using the marginal tax rate calculator at the referenced link shows that the federal tax liability on $53,516 is $6829 not $14,984.50 as you list. The California tax due on $53516 is $2671 per http://www.ftb.ca.gov/forms/2008/08_540tt.pdf Total tax due of $9500 on the distributions on the traditional 401(k)

Not bothering to correct your other tax calculations but they are wrong as well.

]]> By: PKamp3 http://dqydj.net/401k-roth-vs-traditional/comment-page-1/#comment-40 PKamp3 Sat, 27 Jun 2009 02:48:26 +0000 http://dqydj.net/?p=5#comment-40 Thanks Jon, that's a good point. You can roll your 401(k) into a traditional IRA or your Roth 401(k) into a Roth IRA, and take 72(t) (also known as 'Substantially Equal Periodic Payments') distributions from the account before you are of retirement age. Keep the 72(t) in mind as an option if you are looking to retire early. Thanks Jon, that’s a good point. You can roll your 401(k) into a traditional IRA or your Roth 401(k) into a Roth IRA, and take 72(t) (also known as ‘Substantially Equal Periodic Payments’) distributions from the account before you are of retirement age. Keep the 72(t) in mind as an option if you are looking to retire early.

]]> By: Jon Burnstein IV http://dqydj.net/401k-roth-vs-traditional/comment-page-1/#comment-37 Jon Burnstein IV Fri, 26 Jun 2009 18:53:25 +0000 http://dqydj.net/?p=5#comment-37 Also, just some food for thought. It is possible to take money out of your traditional IRA in what's called "substantially equal periodic payments." Here's how it works. The IRS will determine what amount you can receive each year based on your life expectancy. That's the amount you must withdraw each year. Think this is too good to be true? The method is certainly not without risks. Once you start substantially equal periodic payments, you can't stop the payments until you're 59½ or five years have passed, whichever is longer. So there's no changing your mind. If you change or stop these withdrawals at any time, you'll get hit with that 10% penalty applied retroactively from the time you first began receiving payments. So it's generally not a great idea if you're under 50. Even if you are over 50, you'll be eating away at your retirement nest egg, rather than building it up. That means you're likely to come up short when you actually do retire. But, In my opinion, this does add value to the Traditional IRA. Also, just some food for thought. It is possible to take money out of your traditional IRA in what’s called “substantially equal periodic payments.” Here’s how it works. The IRS will determine what amount you can receive each year based on your life expectancy. That’s the amount you must withdraw each year.

Think this is too good to be true? The method is certainly not without risks. Once you start substantially equal periodic payments, you can’t stop the payments until you’re 59½ or five years have passed, whichever is longer. So there’s no changing your mind. If you change or stop these withdrawals at any time, you’ll get hit with that 10% penalty applied retroactively from the time you first began receiving payments. So it’s generally not a great idea if you’re under 50. Even if you are over 50, you’ll be eating away at your retirement nest egg, rather than building it up. That means you’re likely to come up short when you actually do retire. But, In my opinion, this does add value to the Traditional IRA.

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