Hossharris

Don’t forget if that DPSP Cash goes into some tax deferred plan.... you still have to pay the taxes on the back side when you take it out.

There is no free lunch with the irs.

tunes

Which conveniently the presentation leaves out


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CX500T

D'oh. Posted in wrong thread

Hossharris

I noticed that as well.

notEnuf

That is true, and exactly how our current 401k works. Are you saying there’s no advantage in growing a larger initial dollar amount tax free? Do you intentionally not make personal contributions to your current 401k? If so, please explain to me why not. I’m at a loss to understand your point.

Trip7

The Presentation lost all credibility for me when I saw this.

PilotJ3

Tax free and tax deferred are two different things. You’re “growing” tax deferred money, you still owe taxes to the irs when retired.

When the taxes goes up, and they will eventually, you might pay more than what you planned.

In my opinion, pleople looking for these “tax deferred plans” are the ones retiring in the next 5-10yrs. People that have 15-30yrs of career should be very careful.

If I maximiced my 401k for the year, that extra money will be invested in other things like real state, whole life insurance (which they grow your money tax free, because you already payed taxes), walls street, etc. I won’t vote yes for a plan that’s not optional and doesn’t let me use it as I please.

Trip7

There are some advantages of growing your initial dollar tax free. One of the big advantages is tax inefficient investments like REITs, Bonds, and Stocks that pay significant dividends grow tax free and save some capital gains cost. The issue is that advantage is wiped out when you are stripped of control of your own money and it's forced into a low risk/low return plan.

The MBCBP Plan as presented is completely and utterly unacceptable.

notEnuf

Let's for arguments sake say we have a 25% DC and all spill over money (DPSP cash) is captured in an MBCBP.

A 5% return on the funds could replace your portfolio's fixed income/dividend low risk allocation. That would free your self directed 401k money to be invested more aggressively. You could still achieve your overall risk target and allocate your plan as you deem appropriate. As we get nearer to retirement risk should be dialed back and those last high end earnings years would result in the MBCBP plan being funded at an increasingly greater amount which is in line with the life cycle philosophy.

Also you could then use your entire personal contribution ($18500 currently) to add funds to the 401k forcing more spill over into a tax advantaged account. There would be no limit on the amount you could put away other than the amount you earn.

In a balanced life cycle portfolio there is really no loss of control over risk management for the entire retirement pool of money. You would still have a Roth option in the 401k which would allow full funding if you choose the Roth route. That's $61,000 presently for those over 50, which seems to be the target demographic (deadzoners etc.)

We all will eventually need to shelter more income and need more retirement money provided by the company. The IRS limits are not designed for high wage earners. This is just another place to put that money. I'm not for or against anything at this point but I see how I could live with this plan. With the last taxed dollar in and first taxed dollar out draw in retirement I could very effectively manage my tax obligation. With my Roth money after retirement used to control my taxes I could maximize the tax advantage of this plan, which would increase the overall value of the tax advantage even at a fixed low 5% return. This would increase the overall tax savings and investment return to something more approximating an S&P indexed fund at 7-10% with less risk.

sailingfun

Something not discussed here is many DB type plans have large tax advantages for the company. That allows us to negotiate a bigger benefit up front. You have to look at all tax aspects. If you want 5% more in direct DC money from the company they might only be willing to do 3% however if it’s tax advantaged to them might go 4.5%.