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Pay Less Tax When Planning For Retirement

Saturday, July 10, 2010 - 7:37 AM
In yesterday's Ask the Expert article at CNNMoney.com, the question of how best to save for retirement from a tax point of view was reviewed. The article first reviewed the tax changes that will likely occur due to the expiration of the Bush tax cuts and the new taxes that take effect due to the health care reform that was passed earlier this year. There were a few tips about IRAs and tax-managed mutual funds, but there weren't many tips that will help those with most of their savings in bank accounts.
2
Ken TuminKen Tumin5,442 posts since
Nov 29, 2009
Rep Points: 123,699
1. Saturday, July 10, 2010 - 9:59 AM
I suppose IRA CD's could fall into his tips category.  However, I don't think you can make weekly contributions to an IRA CD, like you could with an IRA of stocks, bonds, or funds.  Am I right about that, Ken?

Also, while I have a small 401k plan, I'm really not sure I believe it will prove to be an advantage (though I still participate).  Here are some of my reasons for questioning it:

1.  I'm purchasing mutual funds at the discretion of the 401k management.  They take a %age fee, and each fund takes a %fee.  I'm buying whenever they "group" buy, so I could be buying at the HIGH every week...  I have no control over that.  And if the market actually does tank, down to 8000, 5000, or 1000, the 401k, will turn out to have been a very, very, very, unwise choice.

2.  Taxes.  If taxes in the future rise significantly, I would have been better off paying taxes all along.    By defering taxes til a time when they are higher...I lose.  I would have saved money paying taxes under the bush tax cuts, verses waiting for a time when taxes are astronomical (as some predict they will be).

3.  Cash in the bank.  It's insured.  It grows.  I pay tax on the interest.  When I take money out, for whatever reason, no penalty (wait til CD matures, if not a savings account), no "after/withdrawal" taxes...every penny is mine to use.

Any thoughts?
2
MikeMike327 posts since
Feb 22, 2010
Rep Points: 875
2. Saturday, July 10, 2010 - 11:13 AM
I suppose IRA CD's could fall into his tips category.  However, I don't think you can make weekly contributions to an IRA CD, like you could with an IRA of stocks, bonds, or funds.  Am I right about that, Ken?


IRA CDs usually do have a minimum deposit. However, you can also have an IRA savings account, and once the balance is large enough, you can use those funds to open an IRA CD. Alliant Credit Union offers an IRA savings account with a rate that matches their regular savings account (currently 1.50% APY).
2
Ken TuminKen Tumin5,442 posts since
Nov 29, 2009
Rep Points: 123,699
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