Author Topic: Do lots of people forget that they will still need to pay tax in retirement?  (Read 18125 times)

Dee18

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Thanks for explaining the top hat deal....seems so unfair the highest paid get to avoid taxes that way.

MDM

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Thanks for explaining the top hat deal....seems so unfair the highest paid get to avoid taxes that way.
Another example of the lesser-known Golden Rule: "those who have the gold make the rules".

Rollin

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Just for fun, a quick calculation shows a couple between the ages of 55 and 65 (i.e., eligible for the maximum HSA deduction) can earn $153,650 in W-2 wages and owe $0 federal income tax  They would owe some FICA tax.  This allows for the maximum HSA, tIRA, 403b and 457 deductions.  It does not include children and the tax opportunities typically associated with them, e.g., exemptions, child tax credit, and education credits (although in theory the adults could have education credits themselves).

CategoryMonthly
Comments
Annual
Salary/Wages$12,804$153,650
HSA$721$8,650
FICA base salary/wages$12,083$145,000
Traditional IRA$1,083At maximum$13,000
401(k) / 403(b) / TSP / etc.$4,000At maximum$48,000
457 plans   $4,000At maximum$48,000
Federal Total Income$3,000$36,000
Federal tax$0$0

Filing Status21=S, 2=MFJ
# of earners2
Total Income$36,000
Std. Deduct.$12,600
# Exempt.2
Exemption$8,000
AGI$36,000
MAGI$49,000
Taxable$15,400
Tax$1,540
Savers' credit$2,000
Tax after n-r credit$0



Even better, by throwing long term capital gains (and/or qualified dividends) into the mix, our happy couple could gross $209,015 and still have $0 federal income tax due.

CategoryMonthly
Comments
Annual
Salary/Wages$9,804$117,650
HSA$721$8,650
FICA base salary/wages$9,083$109,000
Traditional IRA$739At maximum$8,863
401(k) / 403(b) / TSP / etc.$4,000At maximum$48,000
457 plans   $4,000At maximum$48,000
Income subject to IRS tax$345$4,137
Qualified dividends$7,614$91,365
Federal Total Income$7,959$95,502
Federal tax$0$0

Filing Status21=S, 2=MFJ
# of earners2
Total Income$95,502
Std. Deduct.$12,600
Act. Deduct.$12,600
# Exempt.2
Exemption$8,000
AGI$95,502
MAGI$104,365
Taxable$74,902
Tax$0


Of course, YMMV, but is there anything amiss with the calculations given the assumptions?  Anyone have a more extreme example?
I didn't think you could max out your 457K and still contribute to an IRA.  Plus, I don't know of any one who can both contribute to a 457K and a 401K.  Am I correct?

Plus, to contribute that much to the 457K (that is $36,000 on top of the max. for 2015 of $18,000, total $54,000) you'd have to be within 3 years of normal retirement (therefore not helping with the RE part).  Not sure where you get the $44,000.

http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-457b-Contribution-Limits

EDIT - as the $54,000 above may be incorrect.  Not sure but the rules may only allow a total of $36,00, not $36,000 plus $18,0000.  Maybe someone can correct this.
« Last Edit: July 28, 2015, 12:40:27 PM by Rollin »

sol

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I don't know of any one who can both contribute to a 457K and a 401K.  Am I correct?

Are you correct that you don't know anyone like that?  I'm not sure who you know, so maybe?

Are you correct that nobody has access to both a 457 and 401k?  No, you are not correct. 

MDM

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I didn't think you could max out your 457K and still contribute to an IRA.
You can.

Quote
Plus, I don't know of any one who can both contribute to a 457K and a 401K.  Am I correct?
See http://money.cnn.com/retirement/guide/401k_457plans.moneymag/index2.htm.

Rollin

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I don't know of any one who can both contribute to a 457K and a 401K.  Am I correct?

Are you correct that you don't know anyone like that?  I'm not sure who you know, so maybe?

Are you correct that nobody has access to both a 457 and 401k?  No, you are not correct.

Okay wise guy I'll play.  Do you know anyone that can take advantage of, or any employer that offers both a 457k and/or a 401K/403B?

(would you feel better if I went back and rephrased my question so it was perfectly accurate as opposed to getting my question out there where most people would understand it?)

Edit - I see that you can contribute to a traditional IRA or Roth AND a 401K, etc. under certain circumstances.  Apparently, I do not qualify for that and thought that applied to all individuals.
« Last Edit: July 28, 2015, 12:35:02 PM by Rollin »

tjalexander

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I don't know of any one who can both contribute to a 457K and a 401K.  Am I correct?

Are you correct that you don't know anyone like that?  I'm not sure who you know, so maybe?

Are you correct that nobody has access to both a 457 and 401k?  No, you are not correct.

Okay wise guy I'll play.  Do you know anyone that can take advantage of, or any employer that offers both a 457k and/or a 401K/403B?

(would you feel better if I went back and rephrased my question so it was perfectly accurate as opposed to getting my question out there where most people would understand it?)

Edit - I see that you can contribute to a traditional IRA or Roth AND a 401K, etc. under certain circumstances.  Apparently, I do not qualify for that and thought that applied to all individuals.

I could... I contribute to a defined benefit pension plus a 401(a). I should have contributed to an 457(b) too but didn't know about this site to educate myself on the benefits of doing so. https://www.arizonadc.com/iApp/tcm/arizonadc/about/index.jsp

sol

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Okay wise guy I'll play.  Do you know anyone that can take advantage of, or any employer that offers both a 457k and/or a 401K/403B?

Yes, I know several professionally.

For someone you might know from the forum, read up on Root of Good's tax planning:  http://rootofgood.com/make-six-figure-income-pay-no-tax/

Rollin

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I don't know of any one who can both contribute to a 457K and a 401K.  Am I correct?

Are you correct that you don't know anyone like that?  I'm not sure who you know, so maybe?

Are you correct that nobody has access to both a 457 and 401k?  No, you are not correct.

Okay wise guy I'll play.  Do you know anyone that can take advantage of, or any employer that offers both a 457k and/or a 401K/403B?

(would you feel better if I went back and rephrased my question so it was perfectly accurate as opposed to getting my question out there where most people would understand it?)

Edit - I see that you can contribute to a traditional IRA or Roth AND a 401K, etc. under certain circumstances.  Apparently, I do not qualify for that and thought that applied to all individuals.

I could... I contribute to a defined benefit pension plus a 401(a). I should have contributed to an 457(b) too but didn't know about this site to educate myself on the benefits of doing so. https://www.arizonadc.com/iApp/tcm/arizonadc/about/index.jsp

Seems like a rarity for this (contribute to both).  Sorry you missed out.

MDM

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Edit - I see that you can contribute to a traditional IRA or Roth AND a 401K, etc. under certain circumstances.  Apparently, I do not qualify for that and thought that applied to all individuals.
Being pedantic: you can always contribute to a traditional IRA, but the IRS limits how much you can deduct.
Being (possibly) helpful: are you aware of the ability to do a "Backdoor Roth"?  ...a Mega Backdoor Roth?

Rural

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Okay wise guy I'll play.  Do you know anyone that can take advantage of, or any employer that offers both a 457k and/or a 401K/403B?

Yes, I know several professionally.

For someone you might know from the forum, read up on Root of Good's tax planning:  http://rootofgood.com/make-six-figure-income-pay-no-tax/


I contribute to both 403b and 457k

Rollin

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Edit - I see that you can contribute to a traditional IRA or Roth AND a 401K, etc. under certain circumstances.  Apparently, I do not qualify for that and thought that applied to all individuals.
Being pedantic: you can always contribute to a traditional IRA, but the IRS limits how much you can deduct.
Being (possibly) helpful: are you aware of the ability to do a "Backdoor Roth"?  ...a Mega Backdoor Roth?

Sometimes responding on a forum limits how deep you can go into some of these subjects, so I understand (about being pedantic).

Anyway, thanks for the education y'all!  Learn't something new (even though I cannot take advantage of it).

Spork

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Edit - I see that you can contribute to a traditional IRA or Roth AND a 401K, etc. under certain circumstances.  Apparently, I do not qualify for that and thought that applied to all individuals.

Yep.  I did 20+ years contributing to both 401k & Roth.  In retrospect I'm not 100% sure that was the optimized way to go about it.  But no egrets.


MMMdude

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Haven't read responses but in Canada taxes are super low here if primarily from dividend income. I am budgeting an extra 5% for taxes on top of spending. Check out taxtips.CA to run any kind of income scenario

arebelspy

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I don't know of any one who can both contribute to a 457K and a 401K.  Am I correct?

Are you correct that you don't know anyone like that?  I'm not sure who you know, so maybe?

Are you correct that nobody has access to both a 457 and 401k?  No, you are not correct.

Okay wise guy I'll play.  Do you know anyone that can take advantage of, or any employer that offers both a 457k and/or a 401K/403B?

Yo.

We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

seattlecyclone

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Yes, it's pretty common for employees of state and local governments (including schools and universities) have access to both a 457 and a 403(b). I was a teaching assistant during my master's program and had access to the state university's 403(b) and 457 plans. My salary was only high enough to max out one of them. I'm kind of kicking myself for choosing the 403(b) plan, but there's no use beating myself up for that now. I've still done pretty well for myself. :-)

Melody

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Here is Australia, late retirement is tax free (you pay tax as the money enters your superannuation account) and marginal tax rate for someone who's sole income source is shares and is pulling down (I.e. crystalising) gains of $38k a year or less is 7.5% (assuming a buy and hold strategy) giving them an average rate of 3.25% or about $1500 a year. More of throught needs to go into achieving this low rate of tax (tax planning) than the actual impact on spending.