Actually, some of folks I know are examples of “oversaving”. Basically, they tucked money into traditional ira’s/401ks over a long period of time. Now they are at an age in which they need to make mandatory withdraws. Together with mandatory payments from pension plans, their taxable income post retirement is more than during their working years, and their tax rate is also much higher…. also made worse by the fact that they have no debt, the have no tax deductions…
Taking it one step further, in their retirement, they are taking their mandatory withdraws and putting that into a Roth IRA, so that gains from this point onward are tax free. Also, from an estate planning perspective, there are some advantages…
At the way the U.S. is heading (spend spend spend, TAX TAX TAX TAX), I think it’s probably pretty accurate to assume that most people’s tax rates in their golden year are probably going to be much higher than right now, assuming that you will have a steady stream of income from distribution and aren’t someone that’s going to be piss poor after having blown through savings.
The flipside is that while gains from Roth IRA are tax free for now, the keyword here is “for now”….It would not surprise me if government finds some clever way to end up changing their minds. (IE, like in california, rather than calling things “tax”, call it a “fee or surcharge”….Editorial: fortunately, Socialist Obamanator and crew will be long gone before my retirement, and hopefully history will not repeat itself…End Editorial).
Anyway, on my traditional employer plans, I have the option of participating in both a 401k and a Roth 401k at the same time, so I usually split the two in half up to the maximum limit (plus company has a matching plan to goes into both). I have no additional IRA accounts setup for either me individually or my side gig, for the aforementioned reason that I think I’ll end up paying a boatload of taxes post retirement than now, everything else is in post-tax investments (though some are in enjoy more favorable tax treatments than others).
Bottom line is that while I think I will pay a lot of taxes if i were to put everything into traditional IRA’s/401k, I don’t trust or government to keep their word that Roth 401k’s won’t be taxed in the future, and it’s a long time before I’m at an age where I can withdraw without a penalty.
Anyone have any clear ways of doing legal tax shelters, please do share 🙂
