nassau otb says if you do not like no file a grievance with teamsters local 707, kevin mccaffrey president and the willjust say no necessitating a filing with the ny public employees relations board.
note that kevin mccaffrey is a trustee of the local 707 prnsion plan taken over by the pbgc
see below which does not discuss sec 457 deferred compensation plans
the recent nassau otb alleged payroll system crash resultedin checks being isdued pased on less than accurate data.
this crash is one of many that has occurred over the years
Wow, Did We Get a Lot of Questions About the Roth 401(k)
Most workers now have to do their own retirement savings, and they face head-spinning choices involving IRAs, 401(k)s and Roth options. Here’s help deciding among them.
ILLUSTRATION: DAVID PLUNKERT
Americans more than ever are responsible for planning their own retirement finances. But the pressure of that responsibility and the variety of options have many confused.
The collapse of traditional pensions is largely driving the self-directed retirement savings.
Most recently, in 2018, about 60% of retirement assets (excluding Social Security) were in self-managed accounts such as individual retirement accounts and 401(k)s, compared with 48% in 2000, according to the Investment Company Institute.
Down and Out
Traditional pensions are disappearing, and workers are saving for retirement in self-managed plans
*2018 IRA amounts are estimates
Source: Investment Company Institute
A few weeks ago, Tax Report attempted to help savers when we examined a trend of more companies offering Roth 401(k) retirement savings, instead of just traditional 401(k)s. But that column brought a deluge of questions from readers. Most wanted to know more about how Roth 401(k)s and Roth IRAs compare with traditional 401(k) plans and traditional individual retirement accounts.
The questions proved how difficult it can be to prepare for an uncertain future. In that spirit, we wanted to answer some of your best questions. So, here goes.
How are traditional IRAs, traditional 401(k)s, Roth IRAs and Roth 401(k)s alike?
All are tax-sheltered retirement-savings accounts that individuals contribute to and manage themselves. They grow tax-free, so there are no levies annually on dividends, interest, trading profits and the like. Investors with taxable accounts can owe taxes annually.
In return for tax-free growth, Uncle Sam often imposes restrictions on retirement-account withdrawals, such as penalties if a saver takes money out before age 59½.
Then what are the differences among these accounts?
There are many, but two are key. The first is that 401(k)s are workplace plans maintained by employers, unlike most IRAs.
This year eligible workers can contribute up to a total of $19,000, or $25,000 if age 50 or older, to their 401(k) or Roth 401(k). Employers can match a portion of these contributions. The combined contribution by both company and worker can’t exceed $56,000, or $62,000 if age 50 or older.
By contrast, traditional IRAs and Roth IRAs aren’t workplace plans and don’t have a company match. The limits on regular contributions are much lower than for 401(k)s and top out at $6,000 for 2019, or $7,000 if age 50 or older.
And unlike 401(k)s, IRA contributions can be affected by income limits. For example, most single filers with income above $137,000 and most married joint filers with income above $203,000 can’t contribute to a Roth IRA for 2019.
The IRA income limits don’t apply to so-called rollovers. Savers typically can make tax-free transfers of their traditional 401(k) funds into traditional IRAs and of Roth 401(k) funds into Roth IRAs, often when they leave an employer. Some companies accept rollovers of IRA assets into their 401(k) plans.
ILLUSTRATION: DAVID PLUNKERT
Okay, so what’s the other key difference?
It’s about when taxes are paid—and it matters a lot.
For traditional 401(k)s and traditional IRAs, the saver’s regular contributions are made in pretax dollars that reduce reported income. Then retirement withdrawals are typically taxed as ordinary income.
For Roth IRAs and Roth 401(k)s, savers put in after-tax dollars and withdrawals can be tax-free—forever. If the saver is converting traditional IRA or 401(k) savings into a Roth IRA, income taxes are due on the conversion.
This means that a saver who puts $6,000 into a Roth IRA or Roth 401(k) is effectively saving more for retirement than one who puts $6,000 into a traditional IRA or 401(k), even though the dollar amount is the same. That’s because taxes have already been paid on the Roth contribution, but they’ll be due in the future on the traditional-account contribution.
For example, say that John has a top combined federal and state tax rate of 25%. If he puts $6,000 into a traditional IRA or 401(k), that’s the equivalent of putting $4,500 into a Roth IRA or Roth 401(k).
So Roth savings can cost more up front. How do I know if they’re worth it for me?
The main consideration, says Vanguard Group’s Global Head of Enterprise Advice Methodology, Joel Dickson, is the saver’s top federal and state tax rate on the money going in compared with this rate at withdrawal. If it will be higher later on, opting for a Roth is probably better.
Choosing a Roth may even be better if the tax rate will be the same or lower in some cases, according to Vanguard’s research.
For example, say that a 66-year-old recently retired worker has a large traditional IRA because she transferred her 401(k) savings into it. Her current 18% top federal and state tax rate is lower than when she was working and also lower than the top 26% rate she expects when she takes required payouts from the IRA.
In this case, paying tax to convert her traditional IRA assets into a Roth IRA could be a good move because her tax rate will be higher at withdrawal. She could move the money in portions over several years, to avoid a higher tax rate.
On the other hand, an older worker who plans to move from a high-tax state to a low-tax state for retirement perhaps shouldn’t pay tax to move assets into Roth accounts.
Roth savings are often good choices for younger workers at the beginning of their careers, says Ed Slott, a certified public accountant who runs his own firm, because their incomes and tax rates will probably be higher later on.
What about other factors, like the length of time the money invested, or inflation, or investment asset class? Do these affect the decision to go Roth?
Mr. Dickson is insistent: These facts make “not an iota of difference.”
That’s assuming the contributions are the same. For example, if Amy’s top federal and state tax rate now is 30%, her $7,000 contribution to a Roth 401(k) would be the same as a $10,000 contribution to a traditional 401(k). In this case, what matters is her tax rate at pay-in compared with the tax rate at withdrawal.
Of course it’s hard to predict your future tax rate, so he recommends that most savers go for a mix of taxable and tax-free retirement savings.
ILLUSTRATION: DAVID PLUNKERT
Are there other benefits to having Roth accounts?
Yes, and here are three. Under current law, Roth IRAs don’t have required payouts in retirement. But traditional IRAs and 401(k) plans often require annual payouts after a certain age, which Congress is poised to raise to 72 from 70½. (To see if your Roth 401(k) requires payouts, check the company plan.)
In addition, tax-free Roth withdrawals don’t raise reported income. So they can help savers avoid or reduce the 3.8% tax on net investment income, which kicks in at $200,000 for most single filers and $250,000 for most married couples. They can also help lower Medicare premiums that rise with income.
If a saver won’t need the money, Roth IRAs have helped older Americans leave more assets to heirs by providing tax-free growth and withdrawals for many years after death. The current legislation before Congress would curtail this benefit somewhat, but details aren’t yet clear.
And are there other good reasons to stick with a traditional IRA or 401(k)?
Sometimes. Savers strapped for funds should put enough in their 401(k) plan to get the full employer match, even if it means forgoing a Roth 401(k). The company match will always be in pretax dollars.
For example, say that a worker has a potential $3,000 match and can afford to put either $3,000 into his traditional 401(k) plan or $2,200 into his Roth 401(k) because he will owe $800 of tax on it. In this case, it’s better to contribute $3,000 to the traditional 401(k) and get the full match.
Also remember that some tax breaks have income limits. For example, say that a saver’s income is just above the limit for the American Opportunity Tax Credit or a student-loan interest deduction. Contributing to a Roth account won’t lower reported income, but contributing pretax dollars to a traditional 401(K) or IRA will.
And without taxable income, savers can lose tax benefits. So if a retiree has annual nursing-home bills of $100,000, these expenses can reduce taxable income from a traditional IRA or 401(k). But the benefit is lost if the retiree only has tax-free income from a Roth IRA or Roth 401(k).
What if I need money from these retirement plans before I retire?
This is a vast topic for another story.
In general, withdrawals from traditional IRAs and 401(k)s before age 59½ incur taxes plus a 10% penalty. There are limited exceptions—such as for death or disability. While some 401(k) plans allow loans or hardship withdrawals, these aren’t freebies.
Roth IRAs and Roth 401(k) withdrawals also are subject to a thicket of rules.
There’s a bright spot here: Contributions to Roth IRAs—but not Roth 401(k)s—can always be withdrawn free of tax or penalties. Mr. Slott says that especially for young savers, Roth IRA contributions can be a good place for emergency savings or to save a down payment for a house. Early withdrawals of Roth IRA earnings are subject to a 10% penalty, however.
For more details on withdrawals, see IRS Publication 590-B or your company plan.
JOIN THE CONVERSATION
Do you have any other questions about self-directed retirement plans? Please share them below.
Write to Laura Saunders at laura.saunders@wsj.com
No comments:
Post a Comment