How much has your 401K earned you over 30 years?

[OHCHUTE 0]

After computing stock market gains and losses over 30 years in combination with corporate matching contributions and, federal and state taxes you'll pay on withdrawals from your 401K investments, should one fund a 401K?

Based on hypothetical market prices, interest earned on any saving account and tax rate:


Try this: put $12,000 per year after tax money in 3% savings account or non qualified(no tax deferal) annuity for 30 years. You will end up with total:

$582,736.88 CASH

At retirement, you could take anything out of the $582,736 and not pay one cent in taxes. The $582,736.00 is yours totally to do anything you wanted to do with.

Calculator here:Future Value of Deposits monthly deposit - interest compounded monthly - (rounded to cents)
http://www.easysurf.cc/vfpt2.htm#sdmi


They keep telling you when you are at retirement age your taxes won't be as much as they are when younger... HA HA HA

Fund your 401K the same amount of money ($300,000). Pending loss or gain in the market and 27.5% estimated tax rate upon withdrawals, how much do you have left out of the $300,000?

Well let say you investments were even, and you never made a cent. You paid in your $300,000. That money at face value is only worth to you $217,500.00 considering being taxed at 27.5% when you withdraw the money.

To earn the same as 3% savings account or annuity your 401K must have earned you a total of 94% at the end of 30 years and an additional 27.5% to pay taxes or a combined total of 121.5%.

That is if the math is correct.

[regulator 0]

Whata a 401k?

[weekender 0]

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After computing stock market gains and losses over 30 years in combination with corporate matching contributions and, federal and state taxes you'll pay on withdrawals from your 401K investments, should one fund a 401K?

Based on hypothetical market prices, interest earned on any saving account and tax rate:


Try this: put $12,000 per year after tax money in 3% savings account or non qualified(no tax deferal) annuity for 30 years. You will end up with total:

$582,736.88 CASH

At retirement, you could take anything out of the $582,736 and not pay one cent in taxes. The $582,736.00 is yours totally to do anything you wanted to do with.

Calculator here:Future Value of Deposits monthly deposit - interest compounded monthly - (rounded to cents)
http://www.easysurf.cc/vfpt2.htm#sdmi


They keep telling you when you are at retirement age your taxes won't be as much as they are when younger... HA HA HA

Fund your 401K the same amount of money ($300,000). Pending loss or gain in the market and 27.5% estimated tax rate upon withdrawals, how much do you have left out of the $300,000?

Well let say you investments were even, and you never made a cent. You paid in your $300,000. That money at face value is only worth to you $217,500.00 considering being taxed at 27.5% when you withdraw the money.

To earn the same as 3% savings account or annuity your 401K must have earned you a total of 94% at the end of 30 years and an additional 27.5% to pay taxes or a combined total of 121.5%.

That is if the math is correct.

i am not messing with you. That makes no sense to me. can you please reread it and perhaps rephrase it?

A 401k earning 3% and a checking account earning 3% will come out with the same number for the same amount of years less the taxes you must pay yearly on the checking account. so apples to apples after 30yrs you will have more in a 401k than a checking account since you dont pay taxes.

"The point is, I'm weird, but I never felt weird."
John Frusciante

[lummy 4]

I wish you the best of luck trying to find a savings account that's giving 3% annual interest

I promise not to TP Davis under canopy.. I promise not to TP Davis under canopy.. eat sushi, get smoochieTTK#1

[quade 4]

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That is if the math is correct.

If I put a penny in a slot machine I'll get back $1,000,000!

That is, if the math is correct.






(Btw, the math probably isn't correct.)

quade -
The World's Most Boring Skydiver

[Remster 30]

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I wish you the best of luck trying to find a savings account that's giving 3% annual interest

Especially one where the interest is not taxable.

Remster

[OHCHUTE 0]

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I wish you the best of luck trying to find a savings account that's giving 3% annual interest

At the rates figured you could put after tax $300,000 earning NO INTEREST and be ahead of a $300K 401K that earned a few points.

I'm not sure too many have looked that this comparison as trillions are collected in 401K waiting tax treatment.

[OHCHUTE 0]

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I wish you the best of luck trying to find a savings account that's giving 3% annual interest

Good point Lummy, you'd need take off 27.5% from the interest earned. Even at that you are still ahead of 401K.

[regulator 0]

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That is if the math is correct.

If I put a penny in a slot machine I'll get back $1,000,000!

That is, if the math is correct.

---------------------------------------------
You must have good luck. The next time you go to vegas let me know.






(Btw, the math probably isn't correct.)

[wmw999 2,589]

No, you have to start taking out the taxes all the way along, which makes it a whole lot bigger chunk in the long run, because it means that all that taxed money doesn't earn interest after it's taxed.

That's the advantage of a 401k -- It's not taxed as you go along. Build your own excel macro or something to figure it out.

Wendy P.

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

[weekender 0]

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I wish you the best of luck trying to find a savings account that's giving 3% annual interest

At the rates figured you could put after tax $300,000 earning NO INTEREST and be ahead of a $300K 401K that earned a few points.

I'm not sure too many have looked that this comparison as trillions are collected in 401K waiting tax treatment.

300k earning nothing will earn you nothing. 300k earning a few points will earn you a few points compounded annually.

Your math does not make any sense. a 401k compounds interest no different than any other account. the only difference being you do not pay taxes annually. you pay only ordinary income when you withdraw at retirement. whether earn interest in a 401k or in a checking account or anything doesnt matter. the laws of math are all the same. please explain to me how i am wrong.

"The point is, I'm weird, but I never felt weird."
John Frusciante

[OHCHUTE 0]

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No, you have to start taking out the taxes all the way along, which makes it a whole lot bigger chunk in the long run, because it means that all that taxed money doesn't earn interest after it's taxed.

That's the advantage of a 401k -- It's not taxed as you go along. Build your own excel macro or something to figure it out.

Wendy P.

If your net salary after tax is $9,000 per month take home pay, and you put $1,000 out of the $9,000 under the mattress for 360 months (30 years) youi'll have $300,000 under your mattress. When you are 51.5 years old you can spend the money tax free.

Now if $1,000 goes into 401K per month tax deferred for 30 years, you might have $300,000 at the end of 30 years, pending how well the stocks have done, but once you draw one dollar, pending your state and federal tax rate, that dollar gets taxed.

So would you rather reach under the mattress and get $300,000, or would you rather get $217,000 from your brokerage house, after the (27.5%) taxes are paid on the tax deferred investment at retirement.

This is not considering any interest on savings or money earned on investment. No inflation is considered either and some annuities have inflation riders to account for that aspect.

Better yet and also: take some of that after tax $9,000 monthy take home pay, and pay more off your mortgage to reduce your debt load as any mortgage interest deduction off taxes, as much as the mortgage guys talk about, to keep you in debt, will never equal saving in not paying the interest in the first place. Especially considering sluggish rise in houseing prices that could never be made up upon sale at retirment. Avoiding too, regressive property tax discussion at retirement age.

I'll avoid the social aspests till we agree on the figures.

[kallend 2,150]

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That is if the math is correct.

If I put a penny in a slot machine I'll get back $1,000,000!

That is, if the math is correct.






(Btw, the math probably isn't correct.)

You'll be taxed on it though.

...

The only sure way to survive a canopy collision is not to have one.

[Remster 30]

Wow...

I'd spend time telling you how badly you set up your scenarios for comparison, but your history of never listening to people makes me think I'll have a more productive time on icanhascheezburger.com

But 1st hint: if you put $1000 in your 401k instead of under your mattress, you already have more money in your pocket.

Remster

[weekender 0]

wait, i have just been informed by a friend that a 401k is always pretax. only a roth ira can be after tax. so my previous post is a weak answer at best

bottom line, your post has to many variables for me to answer. i believe you are not fully understanding the benefits of tax deferment nor the negative implications of inflation. But i am doing a bad job of explaining why. i am not a retail broker or financial adviser so why i am confident i understand why your wrong i am not able to explain it.

i respectfully remove myself from this conversation in hopes someone smarter than me can contribute. i also deleted a previous post because it was factually inaccurate base on my lack of knowledge on basic series 7 material. i am showing my age.

"The point is, I'm weird, but I never felt weird."
John Frusciante

[kelpdiver 2]

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wait, i have just been informed by a friend that a 401k is always pretax. only a roth ira can be after tax. so my previous post is a weak answer at best

No, that friend misinformed you. There are Roth 401ks becoming more widely available - they do not have the income limits of the Roth Ira. And long before I've seen 401ks that allow post tax contributions, though I always questioned the point of doing so. You'd be better off put that money into a traditional ira and converting it into a Roth.

OHCHUTE made numerous errors in his arguments in this thread (starting with, when's the last time you could get 3% on a savings account - roughly 5 years ago.)

But the main one he makes that is necessary to make his argument is when he says that the 300k in the 401k is diminished to 217k, but he ignored the fact that the pretax contributions were discounted by that same amount in taxes in the first place. Unless you're presuming higher blended tax rates in retirement than your marginal tax rate when making the contributions (which is not likely), then the 401k will destroy the savings account at the same 3% return since the later only earns 2.2% annually due to the yearly taxes.

The moral is this - don't bother arguing retirement finances when people want to prove that 401ks don't work. They have no idea what they're talking about. They just want to rationalize their lack of retirement savings.

[weekender 0]

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wait, i have just been informed by a friend that a 401k is always pretax. only a roth ira can be after tax. so my previous post is a weak answer at best

No, that friend misinformed you. There are Roth 401ks becoming more widely available - they do not have the income limits of the Roth Ira. And long before I've seen 401ks that allow post tax contributions, though I always questioned the point of doing so. You'd be better off put that money into a traditional ira and converting it into a Roth.

OHCHUTE made numerous errors in his arguments in this thread (starting with, when's the last time you could get 3% on a savings account - roughly 5 years ago.)

But the main one he makes that is necessary to make his argument is when he says that the 300k in the 401k is diminished to 217k, but he ignored the fact that the pretax contributions were discounted by that same amount in taxes in the first place. Unless you're presuming higher blended tax rates in retirement than your marginal tax rate when making the contributions (which is not likely), then the 401k will destroy the savings account at the same 3% return since the later only earns 2.2% annually due to the yearly taxes.

The moral is this - don't bother arguing retirement finances when people want to prove that 401ks don't work. They have no idea what they're talking about. They just want to rationalize their lack of retirement savings.

thanks for stepping in. i took the 7 about 20 years ago. funny though, my new assistant passed it a few weeks ago and that is where i got my info. usually the young kids are the best at this stuff.

i am not a financial adviser and people are quite surprised to find out i pay a few to help me. if they were witness to this thread, they would not be anymore.

"The point is, I'm weird, but I never felt weird."
John Frusciante

[NWFlyer 2]

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The moral is this - don't bother arguing retirement finances when people want to prove that 401ks don't work. They have no idea what they're talking about. They just want to rationalize their lack of retirement savings.

I'm just happy I have a 403(b) instead so I don't have to deal with all these flaws in the 401(k).

"There is only one basic human right, the right to do as you damn well please. And with it comes the only basic human duty, the duty to take the consequences." -P.J. O'Rourke

[wmw999 2,589]

Wendy P.

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

[OHCHUTE 0]

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wait, i have just been informed by a friend that a 401k is always pretax. only a roth ira can be after tax. so my previous post is a weak answer at best

No, that friend misinformed you. There are Roth 401ks becoming more widely available - they do not have the income limits of the Roth Ira. And long before I've seen 401ks that allow post tax contributions, though I always questioned the point of doing so. You'd be better off put that money into a traditional ira and converting it into a Roth.

OHCHUTE made numerous errors in his arguments in this thread (starting with, when's the last time you could get 3% on a savings account - roughly 5 years ago.)

But the main one he makes that is necessary to make his argument is when he says that the 300k in the 401k is diminished to 217k, but he ignored the fact that the pretax contributions were discounted by that same amount in taxes in the first place. Unless you're presuming higher blended tax rates in retirement than your marginal tax rate when making the contributions (which is not likely), then the 401k will destroy the savings account at the same 3% return since the later only earns 2.2% annually due to the yearly taxes.

The moral is this - don't bother arguing retirement finances when people want to prove that 401ks don't work. They have no idea what they're talking about. They just want to rationalize their lack of retirement savings.

I know people who bought annuities at 5% and they are living on interest only at the moment. The 3% was only used a hypothetical. Still even if 401K got 3% return personal savings could be better. Also what makes you think I have a lack of retirment savings? The 401K hasn't faired better than other accounts. There is one thing for sure: when you are ready to withdraw from 401 you'll enjoy or suffer the advantages of 401. With personal savings you'll know exactly what you will be enjoying, and you will not have to worry about market fluxuations at the time you want to access your money.

[OHCHUTE 0]

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I'm just happy I have a 403(b) instead so I don't have to deal with all these flaws in the 401(k).

There are special benefits to 403(b) not available to non gov't employees.

[NWFlyer 2]

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I'm just happy I have a 403(b) instead so I don't have to deal with all these flaws in the 401(k).

There are special benefits to 403(b) not available to non gov't employees.

Funny you sound so confident about that, yet I don't work for the government.

"There is only one basic human right, the right to do as you damn well please. And with it comes the only basic human duty, the duty to take the consequences." -P.J. O'Rourke

[OHCHUTE 0]

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I'm just happy I have a 403(b) instead so I don't have to deal with all these flaws in the 401(k).

There are special benefits to 403(b) not available to non gov't employees.

Funny you sound so confident about that, yet I don't work for the government.

I'm not sure who you work for but my understanding is that it's not for corporations. I could be wrong.
How about self imployed minister!


A 403(b) plan is a U.S. tax-advantaged retirement savings plan available for public education organizations, some non-profit employers (only Internal Revenue Code 501(c)(3) organizations), cooperative hospital service organizations, and self-employed ministers in the United States. It has tax treatment similar to a 401(k) plan, especially after the Economic Growth and Tax Relief Reconciliation Act of 2001.

Look at your account, times it by 27.5%, deduct that amount and compare that will all your payments and you'll learn if right now it was a wise choice should you want the money right now. Cheers

[Southern_Man 0]

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The 401K hasn't faired better than other accounts. There is one thing for sure: when you are ready to withdraw from 401 you'll enjoy or suffer the advantages of 401. With personal savings you'll know exactly what you will be enjoying, and you will not have to worry about market fluxuations at the time you want to access your money.

Well, other people have pointed out that you make a lot of assumptions or start with poor definitions which influence your analysis very heavily.

I'd just like to address one, which you don't seem too sure of. A 401K is not really a "kind of account" in the way a savings accoung is a "kind of account." 401K really only speaks to the tax treatment of the account, not the kinds of investments which are in it. The savings account really speaks to the kind of investment which are in it.

A 401k, depending on employer and plan sponsor, may include many kind of investments. One of those investment types may be a savings accoung. Often it is a money market account, but so are many of the savings accounts sold at retail banks these days, in my limited experience. It likely has a lot of other choices, too. But if you want to match your savings account and get the tax advantaged status of a 401k, which you don't seem to entirely comprehent, you can jsut select that option in your plan.

"What if there were no hypothetical questions?"

[Southern_Man 0]

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I'm not sure who you work for but my understanding is that it's not for corporations. I could be wrong.
How about self imployed minister!

Ministers are generally better off investing with a Rabbi trust, technically a 409A plan.

Ministers have it made for tax treatment if they are smart about it.

"What if there were no hypothetical questions?"