Comment by chrisabrams | Hacker News Reader

Comment by chrisabrams | Hacker News Reader

Am I the only one that is scared of 401ks? It sounds nice: put your money into an account tax-free, let it grow tax free over 30-40 years. When you retire, you have this nice large fund to pull money from.

My biggest fear is that in 30-40 years the US government and/or 401k funds are so poorly run that they tax 50/60/70% of the income (withdrawals) out of the 401k to sustain theirselves. Lots of people tell me "that won't happen" but when I study history, I realize that the only people who think that are ones who have never lived through a major war. Wars = higher taxes. To me, putting money in a 401k is trusting that everything will be ok for a long time to come, and it's just hard to justify that the way history books show the cycles of war.

It scares me so much that I'd rather pay the taxes now, and invest as I please.

Edit: as omouse mentioned, that is my other fear. That through technology and healthcare innovations, as well as the government recognizing the need to "adjusting" the retirement age, how do I know I will get my 401k at 65? What if it is 85? That's too risky for me :/

> It scares me so much that I'd rather pay the taxes now, and invest as I please.

If government is desperate enough to tax retirement funds at 2x the previous rates, they're desperate enough to tax everything at higher rates, so "investing as you please" won't get you anywhere better.

> That's too risky for me

If technology and healthcare innovations raise the healthy life expectancy by 20 years, why would that be too risky for you? Is it because you have non-standard medical problems?

You don't quite understand 401ks. You can choose either contribute tax free (traditional) or have tax-free growth (Roth). You can't do both in the same account.

This doesn't change the fact that the rules may be changed at some point, but given the ridiculously low limits on 401k contributions anyway you might as well put some money in one. Worst case scenario is you wind up paying taxes on t anyway, but then again you might not.

No matter how you slice it you won't wind up paying more taxes than you will if you pay them now and invest without any tax sheltering.

I'm not confusing them. My concern is the tax that is paid when withdrawing at eligible retirement.

I'm not interested in Roth for arguments sake.

Nitpick, but both a traditional and Roth provide tax-free growth. A Roth allows tax-free distribution is what I believe you intended to say.

I suppose that (barring any fundamental transformation of the structure of our society during the intervening time) the income tax rates will still be progressive, and that the lowest brackets will be quite low - perhaps similar to the current ones.

If you assume that, and you've paid off your mortgage by the time you retire, and aren't planning to blow lots of money on air travel and hotels, then probably the rate at which you withdraw from your 401k will place you in one of those low-rate, bottom brackets.

You should be scared, in Canada the government pushed the retirement age from 65 to 67 so that's 2 years more of working and 2 more years before you have access to your own cash.

That is for CPP/OAS which is the equivalent of US Social Security. You don't get access to your own cash - that goes to current retirees. You pay to current retirees for longer and start getting access to current workers' cash later.

Canada's RRSPs are actually a much better system. They are straight up tax deferral. You can put money into your RRSP at any age up to 70 so long as you have contribution room (ie: you're employed). Later, if you wind up unemployed and therefore in a lower tax bracket than when you put money in, you can take the money out.

If the Canadian government instituted some sort of tax on RRSPs, they wouldn't be able to act fast enough to prevent people from massively draining their RRSPs before new rules took effect.

In the US, you have to wait until you are 59.5, or you begin collecting periodic payments (ie: as if it were a pension), or you pay a 10% penalty.

Thanks for the corrections!

If you are scared of the tax rate rising (which is reasonable, since tax rate in the US is at like an all time low historically speaking), consider Roth type stuff that is taxed now, not later. Or do both, as a hedge.

Honestly asking: do you know if there are any protections in place to prevent Roths from becoming taxed on withdrawal in the future?

History says everything eventually gets taxed if things go bad. Roth's would be an easy one.

If you expect taxes to be higher in the future, then the obvious answer would be to borrow utility from your future self and consume more in the present.

This is sort of a self-fulfilling prophecy, or at least it was when the Boomers made the same decision...

Because of arbitrary rules that do not take cost of living into account, I cannot contribute to a Roth :/

I also have this bad feeling Roth's will face some type of tax / fee in the future :/

Reply on news.ycombinator.com