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Re: Roth IRA questions
Old 05-23-2006, 07:34 PM   #21
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Re: Roth IRA questions

just_hatched,

You might be able to take advantage of a special tax treatment for company stock called Net Unrealized Appreciation (NUA).* It is a method where, if you transfer all the ESOP stock to a taxable account (not first converting them to cash) then:

1) At the time of the ESOP distribution, you'll owe ordinary income tax ONLY on the original cost of the shares.* I've been told that most companies will keep track of this basis for you.

2) Then, when the shares are ultimately sold,
* * a) you'll owe long-term capital gains taxes on the difference between the original cost of the shares and the price at the time of the distribution (this is the NUA).
* * b) you'll owe either long-term or short term capital gains on the amount of appreciation since the distribution, depending on how long you held the shares after the distribution.

The above strategy is subject to rules (age, etc.).* But it is something to look into before automatically rolling into an IRA where everything is subject to ordinary income tax.
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Re: Roth IRA questions
Old 05-25-2006, 11:44 AM   #22
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Re: Roth IRA questions

I appreciate all the comments. I gotta say, tho, that I am more confused than ever!

A buddy at work gave me some articles on Roth vs Traditional and I will read them.

I expect to be in the 15% bracket for my career, and probably in retirement too. Not sure tho!
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Re: Roth IRA questions
Old 05-26-2006, 03:50 AM   #23
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Re: Roth IRA questions

as i said in a previous article if you structure your investments properly keeping equities in your taxable account and bonds and cash in your ira or 401k you can withdraw 20,000 a year tax free from your retirement money and another 15,000 from it at 10%...thats 35,000 a year with a 1500.00 tax bill on money never taxed ...
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Re: Roth IRA questions
Old 05-26-2006, 07:23 AM   #24
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Re: Roth IRA questions

Quote:
Currently I put 16% into my 401k plan (the TSP).* My employer matches 6%.
You get 5% from your employer, not 6%.*

Quote:
How can I calculate if it would be worthwhile to max out a Roth for myself and my wife, then put the rest into 401k?
The TSP is not a vanilla traditional IRA.* It has two extra advantages over a typical one.* First, after 20 years of service, and minimum age of 50, you are eligible for an early out which means you can have access to this money penalty free if you were to take it.* At 30 years of service, minimum age of 55, you can do a full retirement and also have access to this money penalty free.* * A typical traditional IRA requires you to wait until 59 1/2.* * *Forget 72(t);* think complicated withdrawals with specific limitations on how it can be done (something about equal distributions).

The second special advantage of TSP is, for all practical purposes, index funds with no expenses at all.* * Ok its like 0.02% or something nominal.* * Show me any fund company that will offer you that (i'll save you the time and just let you know, you wont find one).

A third special advantage is that the federal government will give you the option to annutized part or all of it at likely a competitive rate. Some people like to do a partial annuity just to have one more steady stream of income. Yes, that's an unpopular thing to do here, but that doesn't mean it isnt done very often. People here will also tell you its a good idea to retire in your 30s, so use this as proof to take the things said here with a grain of salt.

Roth's usually win the Roth vs traditional battle.* *But against a TSP, its a much harder choice as to which to max first per what i said above.
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Re: Roth IRA questions
Old 05-26-2006, 07:41 AM   #25
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Re: Roth IRA questions

Yep, 5%, thanks for the correction. 1% automatically, 3% dollar for dollar, and the next 2% at 50 cents on the dollar.
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Re: Roth IRA questions
Old 05-26-2006, 10:37 AM   #26
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Re: Roth IRA questions

Third TSP advantage: The G Fund.

Originally I didn't like this conservative fund but I was young and put everything in the C Fund (S&P500) which actually was a good thing at the time. But the G fund looks better in my old (55) age. It is a portfolio risk reducer and possibly the only bond fund (although it is not in itself a bond fund) that you need.
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Re: Roth IRA questions
Old 06-12-2006, 10:35 PM   #27
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Re: Roth IRA questions

I am suprised no one discussed the fact that the roth gives you more options.
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Re: Roth IRA questions
Old 06-13-2006, 03:26 AM   #28
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Re: Roth IRA questions

why does anyone think most people will be in a higher bracket not working than working? i have a problem believing that...with the baby boomers now being a major part of the population i cant imagine any politcal leader or group telling the baby boomers that they are raising their tax brackets...oh the social security taxes and medicare taxes may go up big time but i cant see tax rates.also look at how the brackets are raised every year.i think this year 15% may extend as high as almost 79,000.00 worth of income before deductions .at 65 you can get almost 81,000 in income pretax and be in the 15% bracket with a portiion even at 10% ...soon 15% may be 100,000 at this rate as the bracket for 15% has been rising at 1500.00 a year or more for the last decade..effectively most americans will probley be in the 12% overall tax area .i think the roth is just the gov't way of collecting taxes now that they may not collect later
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Re: Roth IRA questions
Old 06-13-2006, 10:41 AM   #29
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Re: Roth IRA questions

I might have misread (and I might be completely misunderstanding how taxes work) but I don't understand why someone would suggest regular savings after doing up to match on 401k and Roth max instead of finishing 401k max.

Our taxes are tiered, as in the first x amount of dollars are taxed at a lower rate, the next x above a threshhold at a higher rate, etc.

If you have exactly the same income in retirement aren't you getting much of it taxed at a lower tier rates (or not at all because of deduction) when it would have all been taxed at your highest bracket during your working years if you just dropped it into savings post tax?

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Re: Roth IRA questions
Old 06-13-2006, 10:43 AM   #30
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Re: Roth IRA questions

Also on Roth - isn't it true that if (heaven forbid) you really needed the cash you can take out your contributions no penalty and no taxes.
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Re: Roth IRA questions
Old 06-13-2006, 10:55 AM   #31
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Re: Roth IRA questions

Google this: Roth Calculator
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Re: Roth IRA questions
Old 06-13-2006, 12:36 PM   #32
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Re: Roth IRA questions

Quote:
Originally Posted by mathjak107
why does anyone think most people will be in a higher bracket not working than working? i have a problem believing that...with the baby boomers now being a major part of the population i cant imagine any politcal leader or group telling the baby boomers that they are raising their tax brackets...oh the social security taxes and medicare taxes may go up big time but i cant see tax rates.also look at how the brackets are raised every year.
It's ironic that your poster name is "mathjak". It doesn't matter what you or anyone else thinks or believes-- it's all about the math. Opinions & forecasts are easy. Math is hard, and if you don't do it then analysis is impossible.

Everyone has to stop looking over everyone else's shoulders and do their own math. For example, some people get pensions when they're not working, but not until a certain starting age. In our case, even if the tax brackets continue their current policy of CPI indexing and the rates don't change, when spouse's pension starts then we'll be in a higher tax bracket. That tax bracket may even shoot up again when we have to start taking RMDs. We'll also be paying taxes on our Social Security distributions whether or not we delay taking them.

So we've started converting our IRAs to Roths now-- when we have nearly zero earned income, a huge mortgage-interest deduction, and a bit of room to the top of the 15% tax bracket. Other side benefits include paying the taxes out of taxable cap gains (effectively boosting the size of the Roth by not taking the conversion taxes out of it), taking SS when we want to instead of when the tax impact will be lowest, and not having to deal with RMD calculations. I can put numbers on a spreadsheet and conclude that a Roth conversion is a good deal, no matter how much I think or believe.

I don't like paying taxes before they're due, but I don't mind paying some now if there's a reasonable possibility that I can avoid paying more later. Will taxes be raised over the next few years? That may be possible, and it's certainly more likely than taxes being reduced (or even staying the same) for the rest of my life. Could Congress change the entire tax code or mess with tax-free withdrawals of Roth IRAs? Sure, but I don't think it's likely enough to make me feel good about staying with conventional IRAs. No matter how hard I think or believe I don't expect my efforts to have a measurable effect on Congressional gridlock or the vested interests in the current tax code.

Ironically we'll probably skip a Roth conversion in 2009 and make our unearned income look as pitiful as possible. The goal will be to turn in a world-class FAFSA for our kid's college scholarship applications. I can do the math on that one, too, without having to think or believe, and you won't find that issue covered by a conversion calcuator.

Quote:
Originally Posted by WRBT
Also on Roth - isn't it true that if (heaven forbid) you really needed the cash you can take out your contributions no penalty and no taxes.
Yes.
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Re: Roth IRA questions
Old 06-13-2006, 05:29 PM   #33
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Re: Roth IRA questions

Quote:
Originally Posted by Azanon

Roth's usually win the Roth vs traditional battle.* *But against a TSP, its a much harder choice as to which to max first per what i said above.
Yup. Our priority is to max out TSP first because its cheap and easy, although usually we can afford to do both TSP and Roth. Another advantage with an IRA is that you have until April of the next year to make the contribution, whereas you're stuck with funding TSP strictly out of paychecks before the end of the year. There were several years where things were tight and those few extra months meant the difference between us funding our IRAs or not funding them at all. Doing TSP first gave us more flexibility and allowed us to maxmize our overall retirement contributions.
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Re: Roth IRA questions
Old 06-14-2006, 03:55 AM   #34
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Re: Roth IRA questions

i think the statistics are about 90% of retired americans are below a retirement income of 81,000 a year with the median around 65,000 for the baby boomers ..with 81,000 the upper limit for the 15% tax bracket before the 20,000 or so in deductions for a couple over 65 and thats this year.on average the 15% bracket gets raised 1500-2000 every year...yes for some a roth makes sense but for most americans its not the best deal...aside from the fact let most americans have easy access to their retirement funds and they will be spent by retirement..i would never want to pay a dollar of tax more today to possibly save a dollar in the future.
whats nice too about pulling out the 35,000 a year from your retirement money at 1500.00 in taxes is if you reinvest it in your taxable account the capital gains rate at least as it is now is 5% if your in the 15% bracket and thats scheduled to go to zero..cant beat that deal for most americans
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Re: Roth IRA questions
Old 06-14-2006, 10:32 AM   #35
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Re: Roth IRA questions

Are you limited by how much you can transfer from a IRA to a Roth in any given year? Do you have to have income in that particular year to do the transfer? For example, if my earned income is 15k annual, can I transfer 20k per year from my old trad IRA to a Roth in that year? Another twist, can I also contibute (new money)to the Roth based on my 15k income for the year?
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Re: Roth IRA questions
Old 06-14-2006, 10:36 AM   #36
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Re: Roth IRA questions

ferco, check out http://www.fairmark.com/rothira/index.htm for answers to your ROTH questions.

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Re: Roth IRA questions
Old 06-14-2006, 11:16 AM   #37
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Re: Roth IRA questions

Quote:
Originally Posted by ferco
Are you limited by how much you can transfer from a IRA to a Roth in any given year? Do you have to have income in that particular year to do the transfer? For example, if my earned income is 15k annual, can I transfer 20k per year from my old trad IRA to a Roth in that year? Another twist, can I also contibute (new money)to the Roth based on my 15k income for the year?
No, no, yes, and yes.

But as REW says, go read the Fairmark website. Also read Ed Slott's books and ask your really abstruse & detailed questions on his discussion board. There's no simple one-size-fits-all answers on this subject.
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Re: Roth IRA questions
Old 06-14-2006, 12:43 PM   #38
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Re: Roth IRA questions

I briefly scanned the fairmark site, but I didn't see anything about rolling over the after-tax portion of a roll-over IRA to a Roth IRA. I have some after-tax money that was rolled from a 401(k) to a roll-over IRA, and it hasn't been 60 days since I left my last job, can I roll the after-tax dollars to a Roth?

Modification:

I just got off the phone with a Fidelity representative, and she said that once the after-tax dollars have been rolled over to a roll-over IRA, it is not possible to separate the pre- and after-tax dollars. That is, if I were to convert any amount, the pre- and after-tax dollars will be withdrawn proportionately from my roll-over IRA. If my after-tax dollars are only 7% of my roll-over IRA, then 93% of the conversion will come from pre-tax dollars, so the situation ends up very much like a regular conversion.

I still think this year and next year will be a good time to convert because I'm a student, and my income is going to be low. It's better than trying to convert while pulling in a regular salary.

Of course, the whole logic of converting to a Roth is based on 1) that taxes will likely be higher in the future and 2) that Roth offers more flexibility than a traditional IRA or a 401(k) making Roth a valuable tool for ER.
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Re: Roth IRA questions
Old 06-14-2006, 06:07 PM   #39
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Re: Roth IRA questions

where are you getting after tax money in a 401k rollover?
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Re: Roth IRA questions
Old 06-15-2006, 06:55 AM   #40
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Re: Roth IRA questions

My old employer let us put after tax dollars into their 401K. I hit the max for, um.. 2001?, and the remainder of my contributions were still allowed into the 401K as after tax. Was only $600 or so.


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