No, I know. That's what you said before. That's what you said in the statement of yours that I quoted.
I'm not talking about policy. I'm talking about reason. I understand that Mastercard told you to do things one way. I'm pointing out that doing things that way is optimal for Mastercard, but decidedly suboptimal for the consumer.
Mastercard asked you to do what you could to ensure that the customer would be liable for any charges related to a stolen or lost credit card, and not the card issuer. You complied. That much was clear. I'm merely looking at this from the consumer's point of view instead.
I shared the news of Coin last November. That's when I pre-ordered one for myself and let the Coin folks know they had made it to slashdot's front page. That was my first and only submission to slashdot.
They didn't so much as thank me for all the free publicity, which irked me a bit, but whatever. I still paid full price for my pre-ordered device and eagerly waited for June 21, 2014, the first day of summer. Summer 2014, when I'd finally be getting my Coin. As June 21 came and went, I realized that they had only said "Summer 2014", not "start of" or "first day of" or anything like that. Okay, so I'll sit tight a little longer. Finally, now in August, I got an email telling me that the time was drawing near, and that I'd be able to provide my shipping information in the Coin app, at which point they'd ship me the device I had paid for nearly a year earlier. Just one catch: I have an Android phone, and the Android app won't be available until September 25, 2014. I checked my calendar and indeed, that ain't summer. I sent an email out to the Coin support team seeking confirmation that I will in fact not be receiving my Coin in "Summer 2014". Their response, received on August 14, included the claims "We are on track to launch and begin shipping soon" and "We apologize we don't have more details regarding shipping your Coin at this time".
That's some bullshit. August 14 is barely one month before the end of Summer 2014, and they still couldn't tell me that there was no way they'd be hitting their shipping target, despite having implied as much in earlier communications. Now they're saying that they're not just running a few days late, no. I won't be getting my Coin in late September or early October. No, now I'll be waiting until "Spring 2015". Based on the way they've handled this so far, I'm starting to suspect that their "Spring 2015" will fall somewhere around June 20, 2015, the very last day of spring, which is one day short of being one year later than I had wrongly expected.
In the meantime, they're offering beta devices to all the angry pre-order customers. Well, they will be, once their Android app is released. Also, it's not for all the angry pre-order customers, as there's a limited number of beta devices available. I have mixed feelings about this myself. On the one hand, I'd like to get my hands on some hardware, as it's been quite a while since I gave them my money and started evangelizing for them. On the other hand, if I've learned anything from slashdot in the last year, it's fuck beta. I'll probably end up flipping a coin (the non-vaporware kind) on September 25 to decide whether or not to just ask for a refund.
Since the US won't be using swipe cards for much longer, this device is dead. It's also dead if you travel outside the US. The US is a very small market when you consider that credit cards are a global phenomenon.
The US will be using swipe cards for much, much longer. Just because Chip&Pin will start appearing in October 2015 doesn't mean the magstripes are going anywhere. Also, it's reasonable to believe that people using this device in the US can continue to use their original cards for the relatively rare times that they're not in the US. The US may be a very small market to you, but since the COIN is designed and developed in the US by a team with no international aspirations, this doesn't seem to be an issue. There's a job for you at Netcraft, though.
In case you haven't noticed, this is slashdot, a US-centric site. Inside the US, Chip&Pin is vanishingly rare. Your objection is irrelevant for the target market. The US has not moved on, although they will start to in October 2015.
I don't know where you guys shop, but I've noticed a trend of having the customer swipe their own card themselves rather than handing the card to the cashier. In any of these cases, the cashier has limited ability to even see the customer's card, let alone have any inclination to actually try to do so.
I was trained at my old retail job by an actual Mastercard representative never to allow use of a credit card without a signed back
In the 15 years that I've been using credit cards, I've never once signed the back of any of them, nor have I ever had any issues using an unsigned card to pay for anything.
When you sign the back of your card, you're providing a template for forgery to anyone that happens to steal or find your card. I can understand why the credit card company would want you to do this, as a convincing forgery job on a signed sales receipt shifts liability from them to the consumer. However, as a consumer, I don't understand why you'd willingly buy in to such a system.
First, calling this thing "credit card sized" amounts to nothing short of a lie - More like a PCMCIA-card sized, or about four credit cards thick. It wouldn't fit in my current wallet, which doesn't even like holding the older embossed-number style cards because of the extra thickness.
You're going to want to buy a new wallet. Roughly one year from now, all your cards will be getting replaced by EMV smart cards that have the same dimensions as the COIN. Sad trombone.
Hi. You're foreign and you forgot that slashdot is a US-centric site. Sorry, but very few card readers today use "the smart chip", primarily because vanishingly few cards have "the smart chip" in them at all. It's not October 2015 yet, and even then adoption will be far from universal.
Also, you forgot about all the other magstripe cards that could be used with the COIN. Store loyalty cards, hotel/airline/car rental rewards cards, etc.
Prawns are larger in size, and have larger legs with claws on three pairs. They have branching gills. Shrimp are smaller, have shorter legs and have claws only on two pairs. Their gills are lamellar, i.e. plate-like.
Prawns and shrimp are both decapod crustaceans i.e. that they have exoskeletons and 10 legs. They can be found in salt water and fresh water all over the world, typically swimming in search of food. Both shrimp and prawns tend to stay near the ocean floor. They also have similar flavors, and come in a wide range of sizes from minuscule to quite large.
In commercial farming and fisheries, the terms shrimp and prawn are often used interchangeably. But of late, the term "prawn" only signifies freshwater forms of palaemonids and "shrimp" for the marine penaeids.
In the United Kingdom, the word “prawn” is more common on menus than “shrimp”; while it’s the opposite in North America. The term “prawn” is also loosely used to describe any large shrimp, especially those that come 15 (or fewer) to the pound (such as “king prawns”, yet sometimes known as “jumbo shrimp”).
Australia and some other Commonwealth nations follow this British usage to an even greater extent, using the word “prawn” almost exclusively. When Australian comedian Paul Hogan used the phrase, “I'll slip an extra shrimp on the barbie for you” in an American television advertisement, it was intended to make what he was saying easier for his American audience to understand, and was thus a deliberate distortion of what an Australian would typically say.
In Britain very small crustaceans with a brownish shell are called shrimp, and are used to make potted shrimp. They are also used in dishes where they are not the primary ingredient.
Prawns and shrimp are two different things. From another source:
Shrimp have branching gills, a side plate that overlays segments in front and behind, and carry their eggs outside of their bodies beneath their tails.
Prawns have lameller gills, side plates that overlap tile-like from front to back, and carry their eggs inside their bodies near their tails.
So indeed, we've established that Australian English is less expressive than American English, at least when it comes to these crustaceans.
I might have caught an oversight in my calculations. Roth retirement accounts may not be so much better after all. Sure, with a Roth, you pay no tax on capital gains. However, the principal you invest is less (since a good chunk of it went to pay taxes). The missing gains on this otherwise-invested money could compensate for the tax-free gains a Roth provides. In the end, it might all be a wash anyway.
I'm a nerd, but I'm not a money nerd. Talk to a real accountant or financial advisor before acting on any of the potentially terrible suggestions you hear coming from me:P
I had a beer and realized I was not accounting for the opportunity cost of paying tax on contributions instead of investing the full pre-tax amount and letting the money that otherwise would have been sent to the IRS to appreciate alongside the rest of the principal. It's entirely possible that paying tax at withdrawal (on a much larger sum of money) might be compensated for by this otherwise uninvested money.
I don't know what a "Roth 401(k)" is -- I've never heard of that before.
A Roth 401(k) is to a traditional 401(k) as a Roth IRA is to a traditional IRA.
My understanding is as follows:
Traditional IRA: Pre-tax contributions; money grows tax free; withdrawals are taxed; fairly limited yearly maximum contributions.
Roth IRA: Post-tax contributions; money grows tax free; withdrawals are not taxed; fairly limited yearly maximum contributions.
401(k): Pre-tax contributions; money grows tax free; withdrawals are taxed; sometimes employers contribute extra as a benefit; much higher maximum yearly contributions.
For completeness:
Roth 401(k): Post-tax contributions; money grows tax free; withdrawals are not taxed; employers are legally allowed to do the same things as with a traditional 401(k); same contribution limits as a traditional 401(k) [technically the contribution limit applies to the sum of all 401(k) contributions, traditional and Roth alike].
Your portrayal focuses simply on when the tax is paid (prior to contribution or after withdrawal). Sure, you're likely to be in a higher tax bracket when you're young, working, and paying into a retirement account than when you're old, living on a fixed income, and taking withdrawals. However, this totally overlooks the fact that withdrawals include capital gains, which account for the majority of the withdrawn funds. That means that the difference in tax rates is not the dominant factor in our financial calculation; the growth of the account's value is. If your retirement account was following the S&P, it would only have taken the last 11 years for it to have grown 400%. That means that even after just 11 years (considerably shorter than the time most people spend saving for retirement), 3/4 of your withdrawals would be from capital gains, not principal. That means that taxes before contribution pale in comparison to taxes after withdrawals, even taking different brackets into account, simply because there's you're withdrawing so much more than you ever contributed. Note that this is the case for IRAs and 401(k)s alike. It's the traditional vs Roth distinction I was talking about.
tl;dr Roth retirement accounts let you pay a 0% tax rate on all capital gains as long as you pay tax on "principal contributed" instead of "principal withdrawn" (because you're paying tax on the principal either way), unlike traditional retirement accounts, which make you pay tax on all gains. Why would the average person go traditional?
The size of the contributions you can make to Roth IRAs are very limited, making them useless as your sole retirement investment vehicle.
401(k)s let you put in much bigger contributions, and grow tax free. Only withdrawals are taxed.
The contribution limits for traditional IRAs are the same or lower than those for a Roth IRA. I don't know much about Roth 401(k) accounts, so I won't comment on how they compare against traditional 401(k) plans.
You're comparing IRAs against 401(k)s. I was making a statement comparing traditional retirement accounts against Roth retirement accounts. Apples, oranges.
While I agree with an overwhelming majority of your expressed sentiment, I take issue with one little part.
I was under the impression that ITTT really was a good school now. Are you just talking smack because you're tired of working with Indians, or am I wrong in my belief?
Disclaimer: While I'm not Indian (although I am a European immigrant), I do live in one of the most Indian places in the United States (my town of ~100k is 28.3% Indian).
Okay, so let's make up some numbers and say your current tax rate is a whopping 50%, and you expect that during retirement it will be a paltry 25%. Also, let's say that of the $500K in your IRA, $100k is principal and $400k is gains.
Traditional IRA:
You grossed $100k to get that $100k into a traditional IRA. You paid no taxes on it. You'll be paying 25% on the full $500k when you take disbursements. That's $125k in taxes, total.
Roth IRA:
You grossed $200k to get that $100k into a Roth IRA. You paid 50% tax on it. You'll be paying 0% on the full $500k when you take disbursements. That's $100k in taxes, total.
So here we have a case where "you expect that those taxes will be less than your current tax rate", and indeed, the traditional IRA has a greater tax burden than a Roth IRA.
Of course, I admit that it's possible that you won't see those types of returns in your IRA. Perhaps you started saving later in life. Perhaps you just really suck at investing. I'll freely admit that it's possible that most of your retirement fund is principal and not gains. However, as far as I know, that's not a likely scenario.
Is my "80% gains / 400% growth" assumption unreasonable for a typical retirement account? I mean, you get this type of growth at 7.18% for 20 years; not exactly unrealistic. The S&P 500 has averaged 13.29% from 1980 through 2013. At this rate, it would take just over 11 years to get 400% growth. If anything, my assumptions are rather conservative.
I meant this from a purely self-interested point of view. Tragedy of the commons and all.
Disclaimer: As a single and childless member of the middle class that doesn't take any deductions, I'm paying at least my fair share. I'm a communist at heart.
Modified Adjusted Gross Income limits (2013):
Single filers: Up to $112,000 (to qualify for a full contribution); $112,000–$127,000 (to be eligible for a partial contribution)
Joint filers: Up to $178,000 (to qualify for a full contribution); $178,000–$188,000 (to be eligible for a partial contribution)
Depending on how good your accountant is, this is more like $150k for singles, $200k for married couples.
Also, while these MAGI limits apply to Roth IRAs, I can't help but point out that traditional IRAs also have MAGI limits as well:
Single filers: Up to $59,000 (to qualify for a full contribution); $59,000-$69,000 (to be eligible for a partial contribution)
Joint filers: Up to $178,000 (to qualify for a full contribution); $178,000-$188,000 (to be eligible for a partial contribution)
Actually, it looks like traditional IRAs can't be used if you earn half as much.
I live in NJ, a right to work state. My employment at the neighborhood ShopRite and Pathmark came with union membership at both stores. I was paid minimum wage at both stores. All the cashiers were (to start). It wasn't possible for me to (legally) take a pay cut from there. I'm not sure what you're saying. Perhaps cashiering at a supermarket is the ticket to riches where you live, but it seems that unions are preventing the unreasonable escalation of labor costs here in right to work NJ.
Didn't know about the Saver's Credit. In my native NJ, having an AGI of $60k for a married couple would land you square in the in-laws basement. No way in hell you'd have money to raise kids, let alone to put aside for retirement. I have trouble remembering that there's places in this country where that's not the case.
The amount you "put in" is taxed either way. The only difference is when it is taxed. With a Roth, you're taxed only on the amount you "put in", immediately. With a traditional, you're taxed on both the amount you "put in" as well as any gains, but only after you withdraw it all.
With a traditional retirement account, you're taxed on both the money invested as well as the gains from that money. With a Roth retirement account, you're taxed only on the money invested, and not the gains. This, to me, makes a Roth retirement account considerably more attractive, particularly since after a long time of accruing reasonable yields, a majority of most retirement accounts' values stem from capital gains, not principal. Is it not true that in the long term, the value of a retirement account is dominated by capital gains, not principal?
Of course, I recognize that there's many variables here, so this may not be the case for everyone. For example, perhaps one somehow has a very high tax rate as a worker saving for retirement, and a very low tax rate as a retired person drawing from retirement accounts. In such a scenario, it might make more sense to pay the tax up-front and invest in a traditional retirement account, only paying (the lower rate) tax when drawing from these retirement accounts. However, since the bulk of most retirement accounts (at retirement) is from capital gains, not principal, I can't imagine a marginally lower tax rate compensating for a vastly larger sum of taxable income/gains in any ordinary situation. Another scenario is where the investor enjoys only miniscule gains. In this case, the retirement account would contain primarily principal, and the benefit of the Roth would likely be outweighed by the traditional account's (usually) better tax rates. However, I don't see either of these scenarios as especially likely. Am I missing some other (hopefully more likely) scenario where the traditional retirement account is preferable to a Roth?
I am not an accountant. Your mileage may vary. Side effects may include nausea, stroke, or death.
Indeed. It's usually described as a raise. Despite very often actually being less than the rate of inflation. I guess "Congratulations! You're getting a 3%-4%=-1% 'raise'!" doesn't have the same ring to it.
Slashdot Mirror
No, I know. That's what you said before. That's what you said in the statement of yours that I quoted.
I'm not talking about policy. I'm talking about reason. I understand that Mastercard told you to do things one way. I'm pointing out that doing things that way is optimal for Mastercard, but decidedly suboptimal for the consumer.
Mastercard asked you to do what you could to ensure that the customer would be liable for any charges related to a stolen or lost credit card, and not the card issuer. You complied. That much was clear. I'm merely looking at this from the consumer's point of view instead.
I shared the news of Coin last November. That's when I pre-ordered one for myself and let the Coin folks know they had made it to slashdot's front page. That was my first and only submission to slashdot.
They didn't so much as thank me for all the free publicity, which irked me a bit, but whatever. I still paid full price for my pre-ordered device and eagerly waited for June 21, 2014, the first day of summer. Summer 2014, when I'd finally be getting my Coin. As June 21 came and went, I realized that they had only said "Summer 2014", not "start of" or "first day of" or anything like that. Okay, so I'll sit tight a little longer. Finally, now in August, I got an email telling me that the time was drawing near, and that I'd be able to provide my shipping information in the Coin app, at which point they'd ship me the device I had paid for nearly a year earlier. Just one catch: I have an Android phone, and the Android app won't be available until September 25, 2014. I checked my calendar and indeed, that ain't summer. I sent an email out to the Coin support team seeking confirmation that I will in fact not be receiving my Coin in "Summer 2014". Their response, received on August 14, included the claims "We are on track to launch and begin shipping soon" and "We apologize we don't have more details regarding shipping your Coin at this time".
That's some bullshit. August 14 is barely one month before the end of Summer 2014, and they still couldn't tell me that there was no way they'd be hitting their shipping target, despite having implied as much in earlier communications. Now they're saying that they're not just running a few days late, no. I won't be getting my Coin in late September or early October. No, now I'll be waiting until "Spring 2015". Based on the way they've handled this so far, I'm starting to suspect that their "Spring 2015" will fall somewhere around June 20, 2015, the very last day of spring, which is one day short of being one year later than I had wrongly expected.
In the meantime, they're offering beta devices to all the angry pre-order customers. Well, they will be, once their Android app is released. Also, it's not for all the angry pre-order customers, as there's a limited number of beta devices available. I have mixed feelings about this myself. On the one hand, I'd like to get my hands on some hardware, as it's been quite a while since I gave them my money and started evangelizing for them. On the other hand, if I've learned anything from slashdot in the last year, it's fuck beta. I'll probably end up flipping a coin (the non-vaporware kind) on September 25 to decide whether or not to just ask for a refund.
Since the US won't be using swipe cards for much longer, this device is dead. It's also dead if you travel outside the US. The US is a very small market when you consider that credit cards are a global phenomenon.
The US will be using swipe cards for much, much longer. Just because Chip&Pin will start appearing in October 2015 doesn't mean the magstripes are going anywhere. Also, it's reasonable to believe that people using this device in the US can continue to use their original cards for the relatively rare times that they're not in the US. The US may be a very small market to you, but since the COIN is designed and developed in the US by a team with no international aspirations, this doesn't seem to be an issue. There's a job for you at Netcraft, though.
In case you haven't noticed, this is slashdot, a US-centric site. Inside the US, Chip&Pin is vanishingly rare. Your objection is irrelevant for the target market. The US has not moved on, although they will start to in October 2015.
I don't know where you guys shop, but I've noticed a trend of having the customer swipe their own card themselves rather than handing the card to the cashier. In any of these cases, the cashier has limited ability to even see the customer's card, let alone have any inclination to actually try to do so.
I was trained at my old retail job by an actual Mastercard representative never to allow use of a credit card without a signed back
In the 15 years that I've been using credit cards, I've never once signed the back of any of them, nor have I ever had any issues using an unsigned card to pay for anything.
When you sign the back of your card, you're providing a template for forgery to anyone that happens to steal or find your card. I can understand why the credit card company would want you to do this, as a convincing forgery job on a signed sales receipt shifts liability from them to the consumer. However, as a consumer, I don't understand why you'd willingly buy in to such a system.
First, calling this thing "credit card sized" amounts to nothing short of a lie - More like a PCMCIA-card sized, or about four credit cards thick. It wouldn't fit in my current wallet, which doesn't even like holding the older embossed-number style cards because of the extra thickness.
You're going to want to buy a new wallet. Roughly one year from now, all your cards will be getting replaced by EMV smart cards that have the same dimensions as the COIN. Sad trombone.
Hi. You're foreign and you forgot that slashdot is a US-centric site. Sorry, but very few card readers today use "the smart chip", primarily because vanishingly few cards have "the smart chip" in them at all. It's not October 2015 yet, and even then adoption will be far from universal.
Also, you forgot about all the other magstripe cards that could be used with the COIN. Store loyalty cards, hotel/airline/car rental rewards cards, etc.
Prawns are larger in size, and have larger legs with claws on three pairs. They have branching gills. Shrimp are smaller, have shorter legs and have claws only on two pairs. Their gills are lamellar, i.e. plate-like.
Prawns and shrimp are both decapod crustaceans i.e. that they have exoskeletons and 10 legs. They can be found in salt water and fresh water all over the world, typically swimming in search of food. Both shrimp and prawns tend to stay near the ocean floor. They also have similar flavors, and come in a wide range of sizes from minuscule to quite large.
In commercial farming and fisheries, the terms shrimp and prawn are often used interchangeably. But of late, the term "prawn" only signifies freshwater forms of palaemonids and "shrimp" for the marine penaeids.
In the United Kingdom, the word “prawn” is more common on menus than “shrimp”; while it’s the opposite in North America. The term “prawn” is also loosely used to describe any large shrimp, especially those that come 15 (or fewer) to the pound (such as “king prawns”, yet sometimes known as “jumbo shrimp”).
Australia and some other Commonwealth nations follow this British usage to an even greater extent, using the word “prawn” almost exclusively. When Australian comedian Paul Hogan used the phrase, “I'll slip an extra shrimp on the barbie for you” in an American television advertisement, it was intended to make what he was saying easier for his American audience to understand, and was thus a deliberate distortion of what an Australian would typically say.
In Britain very small crustaceans with a brownish shell are called shrimp, and are used to make potted shrimp. They are also used in dishes where they are not the primary ingredient.
Prawns and shrimp are two different things. From another source:
Shrimp have branching gills, a side plate that overlays segments in front and behind, and carry their eggs outside of their bodies beneath their tails.
Prawns have lameller gills, side plates that overlap tile-like from front to back, and carry their eggs inside their bodies near their tails.
So indeed, we've established that Australian English is less expressive than American English, at least when it comes to these crustaceans.
I might have caught an oversight in my calculations. Roth retirement accounts may not be so much better after all. Sure, with a Roth, you pay no tax on capital gains. However, the principal you invest is less (since a good chunk of it went to pay taxes). The missing gains on this otherwise-invested money could compensate for the tax-free gains a Roth provides. In the end, it might all be a wash anyway.
:P
I'm a nerd, but I'm not a money nerd. Talk to a real accountant or financial advisor before acting on any of the potentially terrible suggestions you hear coming from me
I had a beer and realized I was not accounting for the opportunity cost of paying tax on contributions instead of investing the full pre-tax amount and letting the money that otherwise would have been sent to the IRS to appreciate alongside the rest of the principal. It's entirely possible that paying tax at withdrawal (on a much larger sum of money) might be compensated for by this otherwise uninvested money.
I don't know what a "Roth 401(k)" is -- I've never heard of that before.
A Roth 401(k) is to a traditional 401(k) as a Roth IRA is to a traditional IRA.
My understanding is as follows:
Traditional IRA: Pre-tax contributions; money grows tax free; withdrawals are taxed; fairly limited yearly maximum contributions.
Roth IRA: Post-tax contributions; money grows tax free; withdrawals are not taxed; fairly limited yearly maximum contributions.
401(k): Pre-tax contributions; money grows tax free; withdrawals are taxed; sometimes employers contribute extra as a benefit; much higher maximum yearly contributions.
For completeness:
Roth 401(k): Post-tax contributions; money grows tax free; withdrawals are not taxed; employers are legally allowed to do the same things as with a traditional 401(k); same contribution limits as a traditional 401(k) [technically the contribution limit applies to the sum of all 401(k) contributions, traditional and Roth alike].
Your portrayal focuses simply on when the tax is paid (prior to contribution or after withdrawal). Sure, you're likely to be in a higher tax bracket when you're young, working, and paying into a retirement account than when you're old, living on a fixed income, and taking withdrawals. However, this totally overlooks the fact that withdrawals include capital gains, which account for the majority of the withdrawn funds. That means that the difference in tax rates is not the dominant factor in our financial calculation; the growth of the account's value is. If your retirement account was following the S&P, it would only have taken the last 11 years for it to have grown 400%. That means that even after just 11 years (considerably shorter than the time most people spend saving for retirement), 3/4 of your withdrawals would be from capital gains, not principal. That means that taxes before contribution pale in comparison to taxes after withdrawals, even taking different brackets into account, simply because there's you're withdrawing so much more than you ever contributed. Note that this is the case for IRAs and 401(k)s alike. It's the traditional vs Roth distinction I was talking about.
tl;dr Roth retirement accounts let you pay a 0% tax rate on all capital gains as long as you pay tax on "principal contributed" instead of "principal withdrawn" (because you're paying tax on the principal either way), unlike traditional retirement accounts, which make you pay tax on all gains. Why would the average person go traditional?
The size of the contributions you can make to Roth IRAs are very limited, making them useless as your sole retirement investment vehicle. 401(k)s let you put in much bigger contributions, and grow tax free. Only withdrawals are taxed.
The contribution limits for traditional IRAs are the same or lower than those for a Roth IRA. I don't know much about Roth 401(k) accounts, so I won't comment on how they compare against traditional 401(k) plans.
You're comparing IRAs against 401(k)s. I was making a statement comparing traditional retirement accounts against Roth retirement accounts. Apples, oranges.
I'm so fucking shit of the constant
I concur?
While I agree with an overwhelming majority of your expressed sentiment, I take issue with one little part.
I was under the impression that ITTT really was a good school now. Are you just talking smack because you're tired of working with Indians, or am I wrong in my belief?
Disclaimer: While I'm not Indian (although I am a European immigrant), I do live in one of the most Indian places in the United States (my town of ~100k is 28.3% Indian).
Okay, so let's make up some numbers and say your current tax rate is a whopping 50%, and you expect that during retirement it will be a paltry 25%. Also, let's say that of the $500K in your IRA, $100k is principal and $400k is gains.
Traditional IRA:
You grossed $100k to get that $100k into a traditional IRA. You paid no taxes on it. You'll be paying 25% on the full $500k when you take disbursements. That's $125k in taxes, total.
Roth IRA:
You grossed $200k to get that $100k into a Roth IRA. You paid 50% tax on it. You'll be paying 0% on the full $500k when you take disbursements. That's $100k in taxes, total.
So here we have a case where "you expect that those taxes will be less than your current tax rate", and indeed, the traditional IRA has a greater tax burden than a Roth IRA.
Of course, I admit that it's possible that you won't see those types of returns in your IRA. Perhaps you started saving later in life. Perhaps you just really suck at investing. I'll freely admit that it's possible that most of your retirement fund is principal and not gains. However, as far as I know, that's not a likely scenario.
Is my "80% gains / 400% growth" assumption unreasonable for a typical retirement account? I mean, you get this type of growth at 7.18% for 20 years; not exactly unrealistic. The S&P 500 has averaged 13.29% from 1980 through 2013. At this rate, it would take just over 11 years to get 400% growth. If anything, my assumptions are rather conservative.
I meant this from a purely self-interested point of view. Tragedy of the commons and all.
Disclaimer: As a single and childless member of the middle class that doesn't take any deductions, I'm paying at least my fair share. I'm a communist at heart.
Modified Adjusted Gross Income limits (2013):
Single filers: Up to $112,000 (to qualify for a full contribution); $112,000–$127,000 (to be eligible for a partial contribution)
Joint filers: Up to $178,000 (to qualify for a full contribution); $178,000–$188,000 (to be eligible for a partial contribution)
Depending on how good your accountant is, this is more like $150k for singles, $200k for married couples.
Also, while these MAGI limits apply to Roth IRAs, I can't help but point out that traditional IRAs also have MAGI limits as well:
Single filers: Up to $59,000 (to qualify for a full contribution); $59,000-$69,000 (to be eligible for a partial contribution)
Joint filers: Up to $178,000 (to qualify for a full contribution); $178,000-$188,000 (to be eligible for a partial contribution)
Actually, it looks like traditional IRAs can't be used if you earn half as much.
Citations: Traditional, Roth
I live in NJ, a right to work state. My employment at the neighborhood ShopRite and Pathmark came with union membership at both stores. I was paid minimum wage at both stores. All the cashiers were (to start). It wasn't possible for me to (legally) take a pay cut from there. I'm not sure what you're saying. Perhaps cashiering at a supermarket is the ticket to riches where you live, but it seems that unions are preventing the unreasonable escalation of labor costs here in right to work NJ.
I don't get it.
And to answer your question: neither. I'd rather be a pizza delivery guy. Those aren't unionized either, though.
Didn't know about the Saver's Credit. In my native NJ, having an AGI of $60k for a married couple would land you square in the in-laws basement. No way in hell you'd have money to raise kids, let alone to put aside for retirement. I have trouble remembering that there's places in this country where that's not the case.
The amount you "put in" is taxed either way. The only difference is when it is taxed. With a Roth, you're taxed only on the amount you "put in", immediately. With a traditional, you're taxed on both the amount you "put in" as well as any gains, but only after you withdraw it all.
With a traditional retirement account, you're taxed on both the money invested as well as the gains from that money. With a Roth retirement account, you're taxed only on the money invested, and not the gains. This, to me, makes a Roth retirement account considerably more attractive, particularly since after a long time of accruing reasonable yields, a majority of most retirement accounts' values stem from capital gains, not principal. Is it not true that in the long term, the value of a retirement account is dominated by capital gains, not principal?
Of course, I recognize that there's many variables here, so this may not be the case for everyone. For example, perhaps one somehow has a very high tax rate as a worker saving for retirement, and a very low tax rate as a retired person drawing from retirement accounts. In such a scenario, it might make more sense to pay the tax up-front and invest in a traditional retirement account, only paying (the lower rate) tax when drawing from these retirement accounts. However, since the bulk of most retirement accounts (at retirement) is from capital gains, not principal, I can't imagine a marginally lower tax rate compensating for a vastly larger sum of taxable income/gains in any ordinary situation. Another scenario is where the investor enjoys only miniscule gains. In this case, the retirement account would contain primarily principal, and the benefit of the Roth would likely be outweighed by the traditional account's (usually) better tax rates. However, I don't see either of these scenarios as especially likely. Am I missing some other (hopefully more likely) scenario where the traditional retirement account is preferable to a Roth?
I am not an accountant. Your mileage may vary. Side effects may include nausea, stroke, or death.
I'm talking about gains. Your gains "now" (pre-investment) are zero. Unless your money has a time machine.
Indeed. It's usually described as a raise. Despite very often actually being less than the rate of inflation. I guess "Congratulations! You're getting a 3%-4%=-1% 'raise'!" doesn't have the same ring to it.
The mentality that everyone is entitled to an x% wage increase for every year of service for the simple fact of being there doesn't make sense.
Does inflation make sense?