Home › Forums › Financial Markets/Economics › 401ks bad?
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plm.
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July 22, 2020 at 10:39 AM #22960July 22, 2020 at 11:02 AM #818883
CoronitaParticipantMy parents got hit hard with RMD.
Their forced RMD income now is way above what they use to make during the working years.I’ve split my annual contributions to 50% traditional 401k and 50% Roth 401k.
Then again, they could always change the rules fo Roth 401k’s too.
I don’t try to trade my 401k. Drip drip drip and forget it, maybe a semi-annual rebalance.
I’m trying to build a much larger sizable position in my after tax account, paying taxes up front. So far, it’s been ok…. I think when Biden takes over, we’re going to see a lot of tax law changes, and for practical purposes, most people here will be paying taxes up the noses in the future.
Biden’s plan is already calling for the elimination of 1031 exchanges and step-up cost basis
July 22, 2020 at 11:11 AM #818885scaredyclassic
ParticipantIm not sure i see any advantage to a 401k for me other than lawsuit protection. Seems actually bad.
If i were betting, id say some sort of extra 401k tax, esp on higher inc. People, is a likely future event.
July 22, 2020 at 11:26 AM #818886CoronitaParticipant[quote=scaredyclassic]Im not sure i see any advantage to a 401k for me other than lawsuit protection. Seems actually bad.
If i were betting, id say some sort of extra 401k tax, esp on higher inc. People, is a likely future event.[/quote]
there’s lawsuit protection.
In the case that your company has a 401k match, it’s free money (so at least contribute to get the maximum match)
But it’s also a way for people who otherwise aren’t financially disciplined to force them to put money away for the future.
The problem is a lot of 401k plans suck. They fund selection suck, and the fees suck. Some plans, are more or less self-directed, so that’s good.
The issue with 401k though is it’s going to get a lot more complicated…
The problem is that a lot of these funds can now speculate in much riskier private equity.
July 22, 2020 at 11:28 AM #818890sdrealtor
Participant[quote=Coronita]My parents got hit hard with RMD.
Their forced RMD income now is way above what they use to make during the working years.I’ve split my annual contributions to 50% traditional 401k and 50% Roth 401k.
Then again, they could always change the rules fo Roth 401k’s too.
I don’t try to trade my 401k. Drip drip drip and forget it, maybe a semi-annual rebalance.
I’m trying to build a much larger sizable position in my after tax account, paying taxes up front. So far, it’s been ok…. I think when Biden takes over, we’re going to see a lot of tax law changes, and for practical purposes, most people here will be paying taxes up the noses in the future.
Biden’s plan is already calling for the elimination of 1031 exchanges and step-up cost basis
That is what we call a high-class problem and the spoils of the victors
July 22, 2020 at 11:33 AM #818891plm
ParticipantI’ve come to the realization that deferring taxes into a 401K is shortsighted and I’m probably going to end up paying an even higher rate when RMD kicks. Just switched to a Roth 401k instead but it’s too late, having maxed out contributions to 401k for a long time already.
Fidelity 401ks have something called brokeragelink where you can invest into whatever you wish. That seems a better option than rolling into an IRA since you can still do a backdoor ROTH this way.
July 22, 2020 at 11:44 AM #818892CoronitaParticipant[quote=plm]I’ve come to the realization that deferring taxes into a 401K is shortsighted and I’m probably going to end up paying an even higher rate when RMD kicks. Just switched to a Roth 401k instead but it’s too late, having maxed out contributions to 401k for a long time already.
Fidelity 401ks have something called brokeragelink where you can invest into whatever you wish. That seems a better option than rolling into an IRA since you can still do a backdoor ROTH this way.[/quote]
The brokerage link option for Fidelity is only available if your 401k plan allows for a self directed plan. I have a Fidelity 401k from a previous employer and one from my current employer.
My previous employer’s plan allows for self directed investment via brokerage link.
My current employees plan doesn’t.
If I could roll money over from my current plan to my previous one, I would. But can’t do that too.
The fund selection is also better in the previous plan. Although Fidelity administers, most of the funds are institutional vanguard index funds with very low fees….
July 22, 2020 at 12:13 PM #818893Participant[quote=sdrealtor][quote=Coronita]My parents got hit hard with RMD.
Their forced RMD income now is way above what they use to make during the working years.I’ve split my annual contributions to 50% traditional 401k and 50% Roth 401k.
Then again, they could always change the rules fo Roth 401k’s too.
I don’t try to trade my 401k. Drip drip drip and forget it, maybe a semi-annual rebalance.
I’m trying to build a much larger sizable position in my after tax account, paying taxes up front. So far, it’s been ok…. I think when Biden takes over, we’re going to see a lot of tax law changes, and for practical purposes, most people here will be paying taxes up the noses in the future.
Biden’s plan is already calling for the elimination of 1031 exchanges and step-up cost basis
That is what we call a high-class problem and the spoils of the victors[/quote]
My wife keeps accusing me of bitching like a rich old guy about first world problems.
My feeling is, well, these are my problems, because im an older guy with a little money in a 1st world country, and furthermore we wouldnt be doing this well if i hadnt sweated the small stuff [that is, been such a frugal saver] over a long period of time.
And i dont feel rich.
And whats the fucking point of winning if they take big chunks of it all anyway.
But shes got a point. Sometimes i listen to myself and i want me to shut up.
If i were in the 4th world, id be mocking people bitching about their silly 3rd world problems
July 22, 2020 at 12:31 PM #818895ParticipantFWIW I was trustee for my mother her final 10 years. The last two of which she spent in a private skilled nursing bed at $150K per year.
I told her financial adviser this is the perfect time to harvest the IRA. He said no leave the money in so you can inherit the tax advantaged funds and allow them to continue to grow.
I said no we will eventually have to pay taxes on that money if we leave it in. If we pull out $150K each year its tax free now with a huge medical expense itemized deduction that would be lost forever if not used.
I was right. It was the right decision in a long line of great decisions she taught me how to make.
Today would be my mother’s 90th birthday. It is also the 1st anniversary of her passing. Happy Birthday Mom! Thanks for teaching me well. I appreciate you.
P.S. Sorry for never telling you how much we were spending for that private room. I know you would have left sooner if I had told so thats why I didnt.
July 22, 2020 at 1:27 PM #818897ucodegen
ParticipantI have found them useful, particularly if there is a match. I do concur that most 401K/ProfitShare setups in companies have very bad selections. The company I used to work for was such a company, but we also had a group of employees who were active personal investors. We pressured the company and the 401K provider (Prudential) for better selections and eventually got it.
The company managing the 401K started pushing automatic rebalancing and target date funds. What people don’t know about both of these is that every time your account gets ‘touched’ by rebalancing, reallocation, transactions, etc – they get to charge a fee (hidden) on top of the standard management fee (I guess you could call it touch labor costs). On one of the meetings pushing these options, three of the company’s investment club members were also at the meeting and the rep got ‘cross examined’ by them. The only way to keep the 401K offerings at the company honest is to be a little militant about it. Usually the selections for what is offered is pushed down to HR from the 401K management company. The HR staff involved are generally not active or knowledgeable investors – so they just accept what the 401K management company offers.
On target date funds, I would generally be careful. I mapped the return of a 30 yr target date fund vs the ones I had selected over a few years and the target date fund royally sucked.
When I was laid off, I rolled all of my 401K funds into a self directed account at a discount brokerage – this was when I was 48 (completely legal, and I would recommend for the knowledgeable)
I would recommend a Roth for those who are within the income threshold. I would be very careful on rolling over a standard 401K into a Roth because it gets taxed at your peak combined rate. If you roll over $500K and earn $100K/yr – the tax rate is on $600K for the year – don’t forget that marginal tax rate is the item you have to watch out for. By my calcs, rolling over a large 401K into a Roth actually causes more taxes overall and reduces possible gains (don’t forget that the taxes taken out on the roll over to a Roth could have been used for investments and gains)
I would also make discretionary retirement investments on a non tax deferred account.
As for tax effects of Roth, 401K, and ‘cash’ discretionary accounts – it depends upon how often you buy/sell stock.
July 22, 2020 at 5:08 PM #818904
svelteParticipant[quote=scaredyclassic]
My wife keeps accusing me of bitching like a rich old guy about first world problems. [/quote]lol my wife tells me I’m getting grumpy, but it’s typically not about money.
[quote=scaredyclassic]
And i dont feel rich. [/quote]This is what I get from my wife: I’ll outline all the what-if scenarios on how we could end up having our saving whacked and not have much in our retirement years.
She’ll just sit there, then turn and look at me and say “I don’t think you remember what it was like to be poor.”
That’s cutting right to the chase. There were weeks when we had to decide what bill was paid. We’re unlikely to ever be in that position again.
July 22, 2020 at 5:10 PM #818905svelteParticipant[quote=sdrealtor]
Today would be my mother’s 90th birthday. It is also the 1st anniversary of her passing. Happy Birthday Mom! Thanks for teaching me well. I appreciate you.P.S. Sorry for never telling you how much we were spending for that private room. I know you would have left sooner if I had told so thats why I didnt.[/quote]
I’m sorry to hear about her passing.
July 22, 2020 at 8:05 PM #818908Participant[quote=svelte][quote=scaredyclassic]
My wife keeps accusing me of bitching like a rich old guy about first world problems. [/quote]lol my wife tells me I’m getting grumpy, but it’s typically not about money.
[quote=scaredyclassic]
And i dont feel rich. [/quote]This is what I get from my wife: I’ll outline all the what-if scenarios on how we could end up having our saving whacked and not have much in our retirement years.
She’ll just sit there, then turn and look at me and say “I don’t think you remember what it was like to be poor.”
That’s cutting right to the chase. There were weeks when we had to decide what bill was paid. We’re unlikely to ever be in that position again.[/quote]
Well, yeah, i should appreciate my tiny success. But i dont. It was way more fun to be young, stupid and broke and see so much potential than to be old and narrow with a cash buffer, but to have eaten the bitter truth.
. I used to blow $$$ on a housekeeper 20 years ago and we were broke. I was an idiot. I even had my shirts pressed at 2 bucks a pop. No way in hell nowadays.
401k? Haha! Why?Its difficult for me connect my current self with the blithering young idiot who HAD A BALANCE ON hiS CREDIT CARD.
I just got done mopping a huge area and sweating profusely. Good thing im in shape. I could easily have a heart attack at my age mopping the deck.
Id rather save the 200 bucks on a houekeeper, even with slight risk of myocardial infarction, and i can iron my shirts while watching netflix, now that im stable whereas back then, i didn’t have it and spent it anyway.
Money changes: its not the same as it was. I assumed it was to be spent when we married. All of it! Hell, we are 150k in the hole with student loans, who fucking cares! Lets make babies!
Later things changed. She wanted a house. I realized we would have to actually not spend all our money. It was like being in AA.
Today i am the most sober conservative old dude i could have turned into. Its staggeringly awful.
Nowadays all the money is different. I tend it and worry about it. Care for it. Hope for it. Each pile is unique, small or large, each has a tale.
If i manage to cash out some gains in a trading acct, for instance, and renovate my kitchen, ill feel like i got a “free” kitchen, whereas if i paid from my the checking acct, it would hurt me to spend it.
As the eskimos have many words for snow, we need different words for different types of monies. It is NOT fungible.
Some is sweaty money. Some is happy money. Found money. Aged money. Guilty money. Mystery money. 401k may be dumb money. Just sitting there, vulnerable to govt attack. Or maybe itll be nervous money. With alzheimers, found money.
In reality i think my later life will be somewhat better with $ but physical health and vitality will be a much greater factor in happiness and life satisfaction for 60 onwards
July 22, 2020 at 9:59 PM #818910CoronitaParticipantIn general, I like the idea of 401k’s and IRA’s, I just wish the rules were more consistent and simple, and for some, I wish there weren’t hoops to jump through.
For example: let’s say your AGI is above the threshold to allow you to contribute to a Roth IRA. Well, there is a legal way still available, called the backdoor Roth IRA conversion.
The idea is basically, you open a traditional IRA and deposit the money, say $3000 into your traditional IRA and then immediately do a Roth IRA conversion. Since the money you put into the new traditional IRA has not earned anything, when you do a Roth conversion, there are no tax consequences
….Well, almost no tax consequences…You see, the big assumption is that you do not have any other IRA accounts opened. If you do have any other IRA accounts, than technically when you converted that $3000 to Roth, you took a distribution across ALL your IRA accounts, not just the one that you opened. From the IRS perspective, an IRA distribution is not from a specific account, it’s from your entire IRA amount across all accounts…
…However, the IRS treats IRA and 401k differently.
If you had a 401k account, and no IRA accounts, then you could do the backdoor roth IRA conversion, since you will only open 1 traditional IRA to do the backdoor roth ira conversion. Again, IRS treats your 401k diferrently from IRAs, even 401ks that were from your previous employers…..There are two huge implications of this 401k and IRA distinction from the IRS.
1. If you ever rolled over a 401k from a previous employer to a Rollover IRA, you just eliminated your ability to do a backdoor Roth IRA. Because the moment you converted your 401k to a Rollover IRA, now you have an IRA account that will be counted as part of any distribution you take converting any IRA money into a Roth IRA,and your pay taxes on that distribution, even if you are taking out (say $3000) exactly what you just put in.
2. If you have other traditional IRAs and want to do a backdoor Roth IRA, then what you could do is you could rollover your IRAs into your existing employer’s 401k plan, if they allow that. Then, for the purposes of the IRS, you have no other IRA accounts, and therefore can do a backdoor Roth IRA conversion. But there are drawbacks to doing thiss.
1. You would be limited to the fund selection(s) and fees of your current employer’s 401k plan
2. This assumes your current employer even allows a rollover from elsewhere into your current plan.Why is it this complicated, I have no idea… But again, yes another first world problem.
Morale of the story. If you want to do a backdoor Roth IRA, don’t ever rollover a previous employer’s 401k account into a IRA… Either keep the 401k or roll it into your existing employer’s 401k plan.
July 22, 2020 at 10:07 PM #818911ParticipantI used to work for the IRS. nothings simple.
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