talk about legitimate ways of sheltering money
 

Ok, I am game, Lookout help me out here.

What do you want to know?

Keep in mind that I don't know you, your financial situation, etc. And oh yeah, this a publically accessible thread so I have to be very careful about what I say.

I'm very good at sheltering money. Like, at the bar, I'll put it under my napkin so it doesn't blow away.

:lol:

Shawnee, you kill me.

And, like, if it shows up at your door, you let it sleep on the couch without a second thought, right?

Am I stupid for putting my money into a 401K instead of a regular mutual fund?

I mean it's tax deferred, which means I have a bigger pile of money earning returns than if taxes had come out of it. Sounds good so far. I get that. That's a big bonus.

But when I retire, I will have to pay tax on what I take out. Seems only fair. However, my house will be paid off then and my dependents will all be off on their own. :fingerx: So I won't be able to take anywhere near as many deductions as I do now, and I will be taxed at a higher rate than I am now. Won't that higher tax rate cancel out any benefit that the pre-tax 401K gave me? Is there any way to calculate that? Is the entire 401K idea a huge fraud perpetrated on our generation?

http://cellar.org/2007/bussheltermoney.gif

bus shelter money

In that it is usually paired with the elimination of pensions, perhaps. But you do need to take into account that you are compounding your gains on the pre-tax amount.

i'll take a 401K over a pension any day of the week.

your taxdeferred earnings compounding over a long period of time is incredibly powerful. Keep in mind that you aren't going to take your entire 401K balance out at once at retirement. You will leave your company, roll the 401K to a traditional IRA and begin withdrawing only what you need - you control the taxes. In fact, you should meet with your planner and accountant to run numbers on converting your traditional IRA to Roth so that you have even greater long term gain and control your money even further.

If you aren't funding a Roth (and you're eligible) do it, even if that means not putting as much into your 401K. Hopefully you can fully fund both, but if you can't fund your 401K to the amount you need to get any available match, then fund your Roth, then finish what you can in your 401K. Obviously I don't know, your particulars so talk to your planner, accountant, and grandmother.

<insert a bazillion disclosures here>

UTMA/UGMA accounts basically allow you to maintain control of the money until the child's 18th birthday. On that day you lose all control of the funds and cannot regain it. The child can choose to buy a hummer (of any variety) and there is nothing you can do about it. Also, although rare, there is precedent for the Custodian of the UGMA account being sued for not making prudent investments for the benefit of the child. Think about a vindictive now-exwife who doesn't think ex-hubbie should have bought XYZ stock.

In short UGMA's are not a "shelter" for money. they are a way of putting money aside for kids, usually for college. The growing popularity and additional control of 529 plans have seen the UGMA concept fall to the wayside for most people.

I'm funding my 401K enough to get the full match, plus an additional couple percent. Are you saying it's better to put that additional couple percent into a Roth instead?

edit: I acknowledge receipt of all the disclaimers, etc.

Absolutely.

(Sorry guys, I know this is a serious thread...it's Friday and I'm slap happy.) I'll quit now.

also you should consider any of the 'custodial fees', expense ratios, backend loads, etc. that may apply.

@lookout123 - Yeah, I forgot about 529 plans... (see! it pays to know an investment advisor who is on the ball!)

@shawnee - an investment in humor is never lost in The Cellar;)

the questions you need to ask yourself are:
1) Do I really need the tax deduction on a couple thousand this year, or would i rather have that money grow tax-freeeee forever more?
2) Do you have better (more) investment choices available to you inside of your 401K or in your Roth?
3) Do you like having the money unreachable in your 401K or would it be comforting to know you could get at it penalty free in case of an emergency.

I can't give you the answer, but those are the questions I would ask you if we were speaking privately.