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Is A 401k Worth It Without A Match?


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#1 tony

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Posted 10 December 2008 - 12:21 PM


http://news.yahoo.co...st/149036/print

#2 lausdfred

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Posted 11 December 2008 - 04:48 PM

QUOTE(tony @ Dec 10 2008, 09:21 AM) View Post






Tony,

Good article, it gets me thinking. Would you or anyone here recommend going with a taxable account rather than continue with a no match 403b. And I'll bet you anything the personal rate will be higher by the time I retire!

#3 tony

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Posted 11 December 2008 - 09:25 PM



I think its a no brainer at the moment anyway . Capital gains are the lowest ever on taxable accounts. 403B money will be taxed as income at a higher rate upon withdrawal. It would seem to me its the way to go if you currently have no assetts in taxable accounts. I would invest in tax efficient funds. Then again there is no guarantee capital gain taxes will stay low.

I however need a tax shelter becuase I have invested outside a retirement plan and have capital gains distributions to pay. The 403b helps me divert money and it cuts my tax bill significantly in the short term.

Nothing is a sure thing as even a Roth can be repealed if the government is hungry enough for money.

Best to own a little of everything.

#4 intruder

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Posted 11 December 2008 - 11:39 PM

QUOTE(tony @ Dec 11 2008, 09:25 PM) View Post

I think its a no brainer at the moment anyway . Capital gains are the lowest ever on taxable accounts. 403B money will be taxed as income at a higher rate upon withdrawal. It would seem to me its the way to go if you currently have no assetts in taxable accounts. I would invest in tax efficient funds. Then again there is no guarantee capital gain taxes will stay low.

I however need a tax shelter becuase I have invested outside a retirement plan and have capital gains distributions to pay. The 403b helps me divert money and it cuts my tax bill significantly in the short term.

Nothing is a sure thing as even a Roth can be repealed if the government is hungry enough for money.

Best to own a little of everything.


15% Capital gains rate will expire or be repealed no later than Dec 31, 2010.

Why do you believe that 403b income will be taxes at a higher rate upon withdrawal since tax brackets are adjusted for inflation and most retirees will have lower amounts of income in retirement??

Why is paying taxes twice, first the income tax on wages and then capital gains in retirement better than deferring all taxes until retirement so that the entire contribution gets the benefit of tax free compounding until distribution?

#5 tony

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Posted 12 December 2008 - 09:14 AM



Intruder


There is no right answer. One size doesn't fit all. I have read arguments either way. It all depends on the individuals personal situation.



I just think the math might not favor an expensive 403B plan even with the deferral if there is no employer match to neutralize the high fees. If one wants to grow their retirement high fees will kill that growth over time.





#6 lausdfred

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Posted 12 December 2008 - 05:00 PM

QUOTE(intruder @ Dec 11 2008, 08:39 PM) View Post

QUOTE(tony @ Dec 11 2008, 09:25 PM) View Post

I think its a no brainer at the moment anyway . Capital gains are the lowest ever on taxable accounts. 403B money will be taxed as income at a higher rate upon withdrawal. It would seem to me its the way to go if you currently have no assetts in taxable accounts. I would invest in tax efficient funds. Then again there is no guarantee capital gain taxes will stay low.

I however need a tax shelter becuase I have invested outside a retirement plan and have capital gains distributions to pay. The 403b helps me divert money and it cuts my tax bill significantly in the short term.

Nothing is a sure thing as even a Roth can be repealed if the government is hungry enough for money.

Best to own a little of everything.


15% Capital gains rate will expire or be repealed no later than Dec 31, 2010.

Why do you believe that 403b income will be taxes at a higher rate upon withdrawal since tax brackets are adjusted for inflation and most retirees will have lower amounts of income in retirement??

Why is paying taxes twice, first the income tax on wages and then capital gains in retirement better than deferring all taxes until retirement so that the entire contribution gets the benefit of tax free compounding until distribution?



The monkey wrench is what our personal income tax rate will be in our retirement years. It has to go way up to pay all the bills the government has run up. I think capital gains taxes will continue to be less than personal.

#7 sschullo

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Posted 12 December 2008 - 07:47 PM

LAUSDfred,
After what has recently happened with retirement savings, I don't think many people have to worry about excessive captial gains taxes in the future.
happy holidays,
Steve

#8 JudyS

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Posted 12 December 2008 - 10:59 PM

All --
There are a thought-provoking set of arguments. In the end, however, we cannot know for sure what the tax situation will be for various kinds of investment vehicles through the course of many years of retirement (if we're lucky). So I have had one lousy original thought in my life, and this is it: It makes sense to diversify your investment types (small cap, value, treasuries and so on) and it ALSO makes sense to diversify the investment vehicles (IRAs, 403,s , taxables and so on). If you diversity vehicles, you can pick and choose which to use for what purposes when the time comes for using that $$ you put away, weighing the advantages of each.

BTW, if this is NOT an original thought, please refrain from telling me that my peak experience was a false one:))))

JudyS


#9 tony

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Posted 13 December 2008 - 05:54 PM



Judy

Thats what I was trying to get across and I was not able to say it as clearly or eloquently as you did.

Thank-You.

I am sorry intruder, but to me you come across as someone who wants to be more right than helpful .

Best wishes to all for a happy holiday season. Being a part of this discussion board has been a great help to me and a pleasure to deal with such knowledgable and polite contributors.

Tony


P.S. Steve has got a point. Capital gains in taxable accounts will be much lower than usual for years to come because of the economic mess we are in. More reason to scrutinize any 403B choice on top of all the current problems it is experiencing as an investment tool.