Tax free, deferred, or taxable accounts for 30 yr old retirement.
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Financial Planning - Financial planning in general. (Moderated) 

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Subject Author Date
Tax free, deferred, or taxable accounts for 30 yr old retirement. PeterL 01-30-2007
Posted by PeterL on January 30, 2007, 7:12 pm
Scenario: 30 year old will be working overseas (China). Annual
income of $60,000 US. His local tax bite will be about 30%. He will
owe no US taxes.

Unfortunately his company does not offer a 401K option. So should he:

1. Max out his Roth IRA? Extra funds into taxable account.
2. Max out his regular IRA? Extra funds into taxable account.
3. Put all his investment into a taxable account? No IRA account?


Posted by raylopez99 on January 31, 2007, 8:30 am
> Scenario: 30 year old will be working overseas (China). Annual
> income of $60,000 US. His local tax bite will be about 30%. He will
> owe no US taxes.
>
> Unfortunately his company does not offer a 401K option. So should he:
>
> 1. Max out his Roth IRA? Extra funds into taxable account.
> 2. Max out his regular IRA? Extra funds into taxable account.
> 3. Put all his investment into a taxable account? No IRA account?

This doesn't answer your question, but a lot of people working
overseas in Asia find out some interesting things, such as: 1) they
often pay a year end bonus often equal to at least two months salary
and sometimes almost all your salary; 2) people open off-shore, secret
(and illlegal) local currency accounts to stash away such bonuses; 3)
up to $80k or so of salary is tax-except by the US, if the US expat
works at least 11 months out of 12 outside the USA.

RL


Posted by PeterL on January 31, 2007, 11:45 am
>
> > Scenario: 30 year old will be working overseas (China). Annual
> > income of $60,000 US. His local tax bite will be about 30%. He will
> > owe no US taxes.
>
> > Unfortunately his company does not offer a 401K option. So should he:
>
> > 1. Max out his Roth IRA? Extra funds into taxable account.
> > 2. Max out his regular IRA? Extra funds into taxable account.
> > 3. Put all his investment into a taxable account? No IRA account?
>
> This doesn't answer your question, but a lot of people working
> overseas in Asia find out some interesting things, such as: 1) they
> often pay a year end bonus often equal to at least two months salary
> and sometimes almost all your salary; 2) people open off-shore, secret
> (and illlegal) local currency accounts to stash away such bonuses; 3)
> up to $80k or so of salary is tax-except by the US, if the US expat
> works at least 11 months out of 12 outside the USA.
>
> RL

Thanks but there is no chance that this person would do anything
illegal. I don't know about the bonus issue. Hopefully this will
happen to him.


Posted by kastnna on January 31, 2007, 10:05 am
> Unfortunately his company does not offer a 401K option. So should he:
>
> 1. Max out his Roth IRA? Extra funds into taxable account.
> 2. Max out his regular IRA? Extra funds into taxable account.
> 3. Put all his investment into a taxable account? No IRA account?

I think it would depend on a couple of things. Does he plan on being
in a higher or lower tax bracket at retirement? Does he expect an
inheritance that may provide large unearned incomes later in life?
Does he expect a large bonus or income increase that could phase out
his "Rothability"? Can he predict or dictate how US tax policy will
change in the next 50 years (I'm guessing No)?

We diviersify investments on a sector risk/return level, maybe he
should also diversify his tax risk and invest in multiple vehicles.


Posted by on January 31, 2007, 11:04 am
No brainer. His U.S. Tax bracket is 0% right now. That means his
retirement tax bracket is guaranteed to match or be higher than his
current bracket. Roth IRA is the best option for this scenario (higher
taxes in retirement than now).

China is also facing the looming baby boomer retirement issue just
like other countries around the world. It's actually much worse since
the 1-child policy means the coming generation is much smaller
percentage compared developed countries. They're rapidly trying to get
people to contribute to their own pension/retirement plans so there
may be some investment-based tax shelters available for China taxes.
Of course, you have to be comfortable enough with China's future to
leave money invested directly overseas to wait out possible penalties
for early withdrawal.

> Scenario: 30 year old will be working overseas (China). Annual
> income of $60,000 US. His local tax bite will be about 30%. He will
> owe no US taxes.
>
> Unfortunately his company does not offer a 401K option. So should he:
>
> 1. Max out his Roth IRA? Extra funds into taxable account.
> 2. Max out his regular IRA? Extra funds into taxable account.
> 3. Put all his investment into a taxable account? No IRA account?


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