Tax-Differed Annuity, 100k at 19

[gull]

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Oh, also not to be nitty, but it's "tax dEferred", meaning you pay taxes on it LATER.

I don't know why you'd want to defer taxes when you've got the capital now, and you have a good 40 years of growth potential. That is why a RothIRA is good. That is "post-taxed" money you are investing.

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Not to be nitty, but paying taxes now and investing at 10% compounded = not paying taxes now, investing at 10% compounded, and paying taxes at finish, mathematically speaking.

This of course assumes similar tax rates. Since we have no knowledge of rates 40 years from now, that is normally a good assumption.

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But because he knows he has the capital NOW, just go ahead and pay taxes now. Get it out of the way when you know you have it/don't need it.

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Huh? This is illogical.

[punkass]

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But because he knows he has the capital NOW, just go ahead and pay taxes now. Get it out of the way when you know you have it/don't need it.


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I would pay taxes on it now because taxes now are historically relatively low. And your tax bracket at 19 will almost be the lowest bracket you'll be in. These should be the reasons why you pay taxes now. Not what you said.

[aceupthepants]

Isn't the tax bracket based on income not age?

Also isn't there a website that places you in a tax bracket and predicts the expected payment? If anyone has a link to that I would appreciate it.

[punkass]

Yes, tax bracket is based on income. And generally, when you're young, you usually make the least.

[prohornblower]

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Oh, also not to be nitty, but it's "tax dEferred", meaning you pay taxes on it LATER.

I don't know why you'd want to defer taxes when you've got the capital now, and you have a good 40 years of growth potential. That is why a RothIRA is good. That is "post-taxed" money you are investing.

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Not to be nitty, but paying taxes now and investing at 10% compounded = not paying taxes now, investing at 10% compounded, and paying taxes at finish, mathematically speaking.

This of course assumes similar tax rates. Since we have no knowledge of rates 40 years from now, that is normally a good assumption.

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But because he knows he has the capital NOW, just go ahead and pay taxes now. Get it out of the way when you know you have it/don't need it.

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Huh? This is illogical.

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Illogical? I'm just saying, get it out of the way. You are going to have to pay them sooner or later, just be done with it, jeesh! I don't see why that would be construed as "illogical".

[111111]

I see no reason to lock up money until you are 60.. If you want to be safe just buy some shorter-term bonds/ CD's. You can re-evaluate what to do with the money after these mature. Locking up money for 41 years is just a waste unless you can get some rediculously high return that they obvoiusly aren't offering.

Also, statistically speaking theres a significant chance you'll kick the bucket before 60, in which case you'd be giving the money to i guess family members. But you would have no direct benefit from it. You might want this to be the case, just something to consider in case you want to make sure you control/see where the money goes instead of locking it up.

[Xcalibur]

Maybe I'm wrong, but assuming tax rates are the same, paying taxes later vs now should be better because you have more money to grow over the years.

Maybe I am missing something, but is this generally correct?

Edit: BTW, I don't mean this to go against putting money in Roth, I put money in my Roth IRA too. I meant to ask this question generally.

[scotchnrocks]

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I see no reason to lock up money until you are 60.. If you want to be safe just buy some shorter-term bonds/ CD's. You can re-evaluate what to do with the money after these mature. Locking up money for 41 years is just a waste unless you can get some rediculously high return that they obvoiusly aren't offering.

Also, statistically speaking theres a significant chance you'll kick the bucket before 60, in which case you'd be giving the money to i guess family members. But you would have no direct benefit from it. You might want this to be the case, just something to consider in case you want to make sure you control/see where the money goes instead of locking it up.

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I agree. Buy some CD's and wait about 5 years and then use most all of that nut for a downpayment on a house. This way you'll get personal usage/ownership (enjoying your money) and an investment vehicle all in one.

[punkass]

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Maybe I'm wrong, but assuming tax rates are the same, paying taxes later vs now should be better because you have more money to grow over the years.

Maybe I am missing something, but is this generally correct?

Edit: BTW, I don't mean this to go against putting money in Roth, I put money in my Roth IRA too. I meant to ask this question generally.

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Given everything equal, it doesn't matter if you pay your taxes now or defer them. You'll pay more in $$ amount if you defer. You start off with less capital if you pay now. If your growth and tax rates are the same, it ends up being the same.

[DesertCat]

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Not to be nitty, but paying taxes now and investing at 10% compounded = not paying taxes now, investing at 10% compounded, and paying taxes at finish, mathematically speaking.

This of course assumes similar tax rates. Since we have no knowledge of rates 40 years from now, that is normally a good assumption.

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This is exactly true, and Najdorf is talking about the difference between Roth (paying taxes now but none later) and other IRAs/401ks (not paying taxes now, paying later).

But let me point out that tax deferred investing (IRA/401k whether Roth or not) is usually much better than non tax deferred. Essentially your 10% annual return becomes 9% or 8% if you are investing in a taxable account, and that difference adds up greatly over long periods.