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Old 03-20-2009, 11:20 PM   #21
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Ditto the other comments on Roth IRA's: I look at them every year or so when I read another article extolling the virtues, and find they just don't make sense for us, even if we could fund one (most years we can't). The basic assumption supporting a Roth, that your tax rate will be higher in retirement, seems ludicrous for most of us LBYM'ers. I aim to be in the lowest possible bracket when I retire, if possible. I find much of the Roth IRA advice to be self-serving money-churning from the financial services crowd.
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Old 03-21-2009, 12:21 AM   #22
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Ditto the other comments on Roth IRA's: I look at them every year or so when I read another article extolling the virtues, and find they just don't make sense for us, even if we could fund one (most years we can't). The basic assumption supporting a Roth, that your tax rate will be higher in retirement, seems ludicrous for most of us LBYM'ers. I aim to be in the lowest possible bracket when I retire, if possible. I find much of the Roth IRA advice to be self-serving money-churning from the financial services crowd.
My only issue with this statement is that you might very well be in the lowest possible tax bracket, and still be in a higher bracket than you are right now. Somebody's got to pay for all this bailing wire and spit!

I personally have a fair amount of money in traditional IRAs, since Roths weren't available most of my investing life. I'm working on converting them now while I am in a lower (retired) bracket, to hedge my bets on the future of taxation in the good ole' USofA. If I was still w*rking and eligible I'd be accomplishing the same thing by funding a Roth until I was ~even, then splitting between the two types.
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Old 03-21-2009, 12:29 AM   #23
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Will they convert to a national income tax?
This would be the unkindest cut of all for heavy post-tax savers like myself (that and a tax on net worth rather than income). People who use Roth IRA's could be penalized twice as well. Hedging against this is why I'm desperate to pump money into pre-tax accounts as fast as possible (at least 42k per year at present), and why I'm not interested in Roth accounts (along with my high current tax bracket). If it comes to pass, I suppose one could at least hope that there is some sort of substantial credit or deduction to help out.
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Old 03-21-2009, 01:35 AM   #24
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I converted some to ROTH and have about 1/3 each ROTH,401K and Taxable now. I am maxing my 401K until retirement but am 60 now. When I retire I like having different pools of money with different tax implications. I will draw enough from my 401K to get me enough taxable income to get to the bottom of the 15% bracket. The ROTH will be for if I ever need a huge amount at once since it cost me nothing more for taxes. I will use it up before I die. The taxable account I can play with and hopefully have long term gains. I will keep much of this for last if I don't use it all I will leave it to heirs with a stepped up basis.
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Old 03-21-2009, 01:47 AM   #25
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Another thing to consider is stealth taxes. As one example of many, once you are on Medicare your premium level is tied to your "adjusted AGI". You add back any tax free income such as municipal bond interest to your AGI. For 2008 tax year if you manage to stay under $85,000 (single) you will pay the base Medicare premium in 2010. Over $85,000 there are step-ups that at the top much more than double your base premium. There is also talk, as yet not enacted, of similarly indexing Pt. D to income defined this way.

This year I am paying a double Part B premium, based on my income in 2007. In 2008, I paid a lesser increase, based on my income from 2006.

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Old 03-21-2009, 06:43 AM   #26
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I converted some to ROTH and have about 1/3 each ROTH,401K and Taxable now. I am maxing my 401K until retirement but am 60 now. When I retire I like having different pools of money with different tax implications. I will draw enough from my 401K to get me enough taxable income to get to the bottom of the 15% bracket. The ROTH will be for if I ever need a huge amount at once since it cost me nothing more for taxes. I will use it up before I die. The taxable account I can play with and hopefully have long term gains. I will keep much of this for last if I don't use it all I will leave it to heirs with a stepped up basis.
I find your approach to be very appealing and intelligent. It gives you a lot of control over how much taxable vs non-taxable income you choose to take every year.

Will you take Social Security when you first retire? If not, what is your strategy concerning 401K withdrawals and SS? I gather that SS is taxable for most of us, and I have thought it might be smart to withdraw more from my 401K in the years before I start receiving SS than I would later, so that I could stay in about the same tax bracket.

I am 60 years old like you, and I admit that some days I do feel like an "old woman"!! But on other days I feel the same as I did when I was 25.
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Old 03-21-2009, 07:59 AM   #27
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My actuarial end is 30-40 years away. I don't think there is any question that rates will go higher, just a question of how much and when. So it's not out of the question that tax rates will be higher for lower income levels (in retirement) than the tax rates for my present higher income level. So post-tax now may well be the smart move, but of course no one can say definitively, so we all have to make our decisions and live with them.

The Roth question is timely for me. DW and I have 4 IRA between us, two TIRA's and two Rollover IRA's. The TIRA's have been funded entirely with non-deductible contributions, so I hope to convert them to Roth IRA's in 2010 (no income taxes on principle at all, only on gains which may be neglible if the market continues to be weak) - looks like a no brainer. The rollovers not as clear as we will have to pay taxes on all of that...
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Old 03-21-2009, 08:08 AM   #28
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.... The TIRA's have been funded entirely with non-deductible contributions, so I hope to convert them to Roth IRA's in 2010 (no income taxes on principle at all, only on gains which may be neglible if the market continues to be weak) - looks like a no brainer. The rollovers not as clear as we will have to pay taxes on all of that...
Not quite true about no income taxes on principle at all. You already paid income taxes on the principle essentially at your marginal rate before you put the money in the non-deductible IRA.

I have a question: If you have losses in your ndIRA, do you get a tax break when you do the converion to a RothIRA?
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Old 03-21-2009, 08:10 AM   #29
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Not quite true about no income taxes on principle at all. You already paid income taxes on the principle essentially at your marginal rate before you put the money in the non-deductible IRA.
Fair enough, I assumed folks would realize I meant WRT the upcoming conversion.
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Old 03-21-2009, 01:10 PM   #30
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The CBO just released their estimates and are forecasting a federal deficit of $1.7 Trillion. Social Security and Medicare shortfalls need to be paid for. National health care (if it passes) needs to be paid for (although a small downpayment is already in the $1.7T deficit projection).

It looks like some of this will be paid for with a carbon tax (the next big pot of honey for Uncle Sugar to dip his beak in) which can't be avoided by any existing tax shelter.

However, it seems unlikely we're going to see lower tax rates in the future than we have right now. Unless you're currently in the top tax bracket, it will be hard to come out ahead saving before tax dollars. Go with the ROTH.
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Old 03-21-2009, 01:56 PM   #31
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However, it seems unlikely we're going to see lower tax rates in the future than we have right now. Unless you're currently in the top tax bracket, it will be hard to come out ahead saving before tax dollars. Go with the ROTH.
I have not been funding my Roth the last few years. After I retire I think I will have a window of a few years before SS kicks in and maybe before drawing a pension to convert TSP money into a Roth.

In the meantime, I'm maxing out the TSP including the catchup and saving in aftertax accounts.
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