Reply to Do you cut back on 401k/IRA saving if you expect to inherit millions?

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[quote=Anonymous][quote=Anonymous]If you can reasonably expect to inherit a sizable amount by your normal retirement age, and you’ve already accumulated “enough” in your tax advantaged retirement accounts, would it make sense to cut back on the aggressive 401k saving and enjoy the money while you’re young instead? Say you have 1M in your 401k at 40, and will probably get 3–5M when your parents are gone. Maybe only contribute up to the 401k match instead of max it out? I don’t want to live a life of deprivation when I’m young and able bodied only to come in to a fortune when I’m too old to enjoy it.[/quote]

If you have $1 million in your 401k at 40, is the $22,500 a year you're putting into it really the difference between living a life of deprivation or not?

I'm a bit older than you and have more money saved, and am likely to inherit at least the top end of your range, but I'm still maxing out my tax-advantaged savings because (as plenty of people have noted) you never know what you'll actually inherit, and the tax shelter is useful.

I don't think you'd actually get much extra joy out of cutting back your savings now, anyway. Let's say you're contemplating cutting contributions back from $22,500 to about 6 percent of your salary. We'll assume for purposes of argument here that you're making $200,000, so you're cutting back from $22,500 to $12,000. That's $10,000 a year, about $833 a month — a lot! Though probably not the difference between deprivation and luxury. But then you've got to pay taxes on that. FICA alone takes out $765, and then let's be conservative and say your net federal and state taxes are another 8 percent (which is probably low), so that's another $800. Which leaves you with $8,500 a year that you were saving but no longer are.

Worth the risk that you might not get the inheritance, in the end?[/quote]

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