Think of it this way. You deposit $100 tax deferred. After 10 years you have $1100. So you have made $1000 and you have to pay taxes on $1000.

But instead if after 2 years you take it out and you had made $200 on it. So you pay taxes on your $200 and take the original $100 and the remainder after taxes of your profit (say $100, 50% tax). So you put this $200 offshore and let it sit for 8 more years, So after the 8 years, maybe it is worth $1000. But then you can use that $1000 without paying any taxes on it. Sure it cost you the tax up front when you took it out of the tax deferred account, but all the interest after that is tax free.

That is what they are talking about.

To the best of my knowledge when money comes out of a tax advantage account, 401K/IRA that in itself is the taxable event. So tax's are due and sometimes actually withheld by the institution.

I can see how this would work with regular accounts but how does someone even get the money out of the 401K/IRA without it being a taxable event?

withdrawing funds from tax deferred accounts are of course taxable AND at a high tax percentage. but only ONCE

I see your point. Paying the tax on it sooner rather than later and then allowing to to grow tax free outside the US.

It makes no sense to me at all! If you took out all of your IRA the same year ALL of that income would be taxed as income for that one year (for most people at a higher tax rate). The tax hit would be massive. On the other hand, if you take it out in drips and drabs, it continues to grow tax protected, and you only pay the tax for the much smaller amount you take out annually.

Good point about not taking it all out in the same tax year. I expect to have several years of no earned income followed by 7 years of a small income from a pension until I begin collecting SS.

PB I believe you are correct about not being able to withdraw money before 59 1/2 without paying a penalty with the exception of a SEPP. With a SEPP in place I would have access to some of my money every year which I guess fits nicely with the idea of not taking it all out in one tax year.

I have received many good suggestions. Some how I thought that with the recent revelation that so many TV members were millionaires I would get far more suggestions. Maybe they aren't American!

If you are moving lock, stock, and barrel to Thailand to retire, I suggest you ...

...you move all your assets out of the U.S. and the claws of the IRS. of course... if you like to finance smart bombs and cruise missiles with your tax dollars which kill innocent people then leave everything as is you have my blessing,

Naam, the USA is one of the few big countries that taxes WORLD WIDE INCOME. Legally, we have to renounce our citizenship to escape the claws of the IRS. Even American war resisters and the Amish cannot escape those claws.

I beg to differ, essentially I dont pay a dime to the US any more..... but yea I suffer for it too.

Think of it this way. You deposit $100 tax deferred. After 10 years you have $1100. So you have made $1000 and you have to pay taxes on $1000.

But instead if after 2 years you take it out and you had made $200 on it. So you pay taxes on your $200 and take the original $100 and the remainder after taxes of your profit (say $100, 50% tax). So you put this $200 offshore and let it sit for 8 more years, So after the 8 years, maybe it is worth $1000. But then you can use that $1000 without paying any taxes on it. Sure it cost you the tax up front when you took it out of the tax deferred account, but all the interest after that is tax free.

That is what they are talking about.

BINGO!

It makes no sense to me at all! If you took out all of your IRA the same year ALL of that income would be taxed as income for that one year (for most people at a higher tax rate). The tax hit would be massive. On the other hand, if you take it out in drips and drabs, it continues to grow tax protected, and you only pay the tax for the much smaller amount you take out annually.

if it doesn't make any sense to you JingThing i suspect that maths is something you don't bother too much about

It makes no sense to me at all! If you took out all of your IRA the same year ALL of that income would be taxed as income for that one year (for most people at a higher tax rate). The tax hit would be massive. On the other hand, if you take it out in drips and drabs, it continues to grow tax protected, and you only pay the tax for the much smaller amount you take out annually.

if it doesn't make any sense to you JingThing i suspect that maths is something you don't bother too much about

Agree with most your posts, but don't get the math you are referring to. Below are rough calcs.

100k nest egg at 7% annual returns not adjusted for inflation.

* 100k IRA

* Pulling 100k from IRA = 50k after penalties and taxes (using 50% tax rate from an earlier poster - seems a little high, but it helps make my point - lol ).

After 20 years:

IRA = 390k

Non-taxable 50k = 195k

Quite a few variables, but the average tax rate for 65+ tax payers is roughly 11%. 65+ tax payers pay the lowest percentage of taxes compared to income.

Using an aggressive 20% tax and 40k annual withdraws:

* 390k IRA last 11 years

* 195k Non taxable lasts 6 years

That is my math and please don't make me look foolish

It makes no sense to me at all! If you took out all of your IRA the same year ALL of that income would be taxed as income for that one year (for most people at a higher tax rate). The tax hit would be massive. On the other hand, if you take it out in drips and drabs, it continues to grow tax protected, and you only pay the tax for the much smaller amount you take out annually.

if it doesn't make any sense to you JingThing i suspect that maths is something you don't bother too much about

Well, I did rather well at math.

I don't think you get it.

If money is in a tax free retirement account, it continues to grow in there tax free (US people, US people do not say maths).

So when you take it out, it just adds to your current annual income.

If you took it all out at once, again for Americans, you would then have a pot of money to invest and the income of such investments would be taxable Plus you would take a brutal hit to take it out all at once. The idea sounds crazy.

It makes no sense to me at all! If you took out all of your IRA the same year ALL of that income would be taxed as income for that one year (for most people at a higher tax rate). The tax hit would be massive. On the other hand, if you take it out in drips and drabs, it continues to grow tax protected, and you only pay the tax for the much smaller amount you take out annually.

if it doesn't make any sense to you JingThing i suspect that maths is something you don't bother too much about

Well, I did rather well at math.

I don't think you get it.

If money is in a tax free retirement account, it continues to grow in there tax free (US people, US people do not say maths).

So when you take it out, it just adds to your current annual income.

If you took it all out at once, again for Americans, you would then have a pot of money to invest and the income of such investments would be taxable Plus you would take a brutal hit to take it out all at once. The idea sounds crazy.

I think this may be Naam specific math. If you are in the highest tax bracket at 65+ years old, it might be better to take the one time hit (still can't find the benefit by my calcs, but maybe Klingons are taxed differently ). For us mere humans, it doesn't make sense.

Think of it this way. You deposit $100 tax deferred. After 10 years you have $1100. So you have made $1000 and you have to pay taxes on $1000.

But instead if after 2 years you take it out and you had made $200 on it. So you pay taxes on your $200 and take the original $100 and the remainder after taxes of your profit (say $100, 50% tax). So you put this $200 offshore and let it sit for 8 more years, So after the 8 years, maybe it is worth $1000. But then you can use that $1000 without paying any taxes on it. Sure it cost you the tax up front when you took it out of the tax deferred account, but all the interest after that is tax free.

That is what they are talking about.

While we are debating math, and I know a bit about it and tax rates, I will debate this one. Sorry, jstumbo.

A deposit of $100 tax deferred, only grows to $206 even at 7.5%, compounded. You pay taxes on $206 at your current rate when you take it out, leaving you with maybe $148 if you are in the 28%bracket. You may be subject to another 10% tax penalty.

If you take out your deposit of $100 after two years, it is only $115.56, and you pay tax at 38%, and only have $78 dollars left.

That illustrates both math and language: if you make several arithmetic or grammatical errors in a few sentences, you lose your audience and the argument.

Think of it this way. You deposit $100 tax deferred. After 10 years you have $1100. So you have made $1000 and you have to pay taxes on $1000.

But instead if after 2 years you take it out and you had made $200 on it. So you pay taxes on your $200 and take the original $100 and the remainder after taxes of your profit (say $100, 50% tax). So you put this $200 offshore and let it sit for 8 more years, So after the 8 years, maybe it is worth $1000. But then you can use that $1000 without paying any taxes on it. Sure it cost you the tax up front when you took it out of the tax deferred account, but all the interest after that is tax free.

That is what they are talking about.

While we are debating math, and I know a bit about it and tax rates, I will debate this one. Sorry, jstumbo.

A deposit of $100 tax deferred, only grows to $206 even at 7.5%, compounded. You pay taxes on $206 at your current rate when you take it out, leaving you with maybe $148 if you are in the 28%bracket. You may be subject to another 10% tax penalty.

If you take out your deposit of $100 after two years, it is only $115.56, and you pay tax at 38%, and only have $78 dollars left.

That illustrates both math and language: if you make several arithmetic or grammatical errors in a few sentences, you lose your audience and the argument.

I didn't catch that error. Maybe Naam is saying it would be better to never invest in an IRA and in stead to invest money in non-taxable investments. Investing in a Roth IRA would accomplish the same and it's is legal. Roth IRA are funded with taxable income, but the distributions aren't taxed.

I believe what Naam is advising is take the money out sooner, but not before age 59 1/2 so no penalty is paid. Pay the applicable taxes. Minimize them if possible by taking the money over a period of years and move the money "off shore" which would then allow it to grow tax free. That would mean that later you would have more money and not have to pay tax's on any of it ever again. All dodginess aside I believe he is correct. I do however have to be able to sleep at night.

Is this the only real suggestion?