Boston College says TIRA over Roth ???

[RetireBy90]

Just read piece about a Boston College study Saying the general public might just be better with a traditional IRA and the tax deduction at your current rate.

https://www.marketwatch.com/story/d...until-you-read-this-11608051128?siteid=yhoof2

Four-fifths of households in retirement will pay an effective tax rate of 0%, or nearly zero, write Boston College researchers Anqi Chen and Alicia Munnell (the director of the Center for Retirement Research, and a MarketWatch contributor) in a new paper. That includes federal and state income taxes.

Only those in the top fifth of retired households by income pay significant taxes, and even then the average rate for that group is only 11.3%, they calculate.

In the top 1% by income the average is 22.7%, they add.

I'm still telling the kids to put the money into Roth and converting the remaining TIRA to Roth this year and next. YMMV IMHO BYOB

 

[jazztbone]

Just read piece about a Boston College study Saying the general public might just be better with a traditional IRA and the tax deduction at your current rate.

https://www.marketwatch.com/story/d...until-you-read-this-11608051128?siteid=yhoof2



I'm still telling the kids to put the money into Roth and converting the remaining TIRA to Roth this year and next. YMMV IMHO BYOB

I think that anyone who cares enough about their assets and retirement savings to read this forum will likely have enough of a nest egg at retirement to make a ROTH worthwhile.

 

[atmsmshr]

Just a early morning coffee swag, but I venture that five-thirds of this community forum are in the top one-fifth for the USA income profile.

Hence - approximating a proportionate IRA/Roth, particularly while young and starting out, and when recently retired - matters.

 

[CardsFan]

Just a early morning coffee swag, but I venture that five-thirds of this community forum are in the top one-fifth for the USA income profile.

Hence - approximating a proportionate IRA/Roth, particularly while young and starting out, and when recently retired - matters.

Five-thirds? I think you need more coffee

But I think your point is correct.

 

[JoeWras]

Looks like a case of the tail wagging the dog.

Study says people don't pay much tax in retirement. OK. Why? I say it is because they don't save enough in IRAs and 401ks.

Study suggests people should use tIRA. (Doesn't mention 401ks, but it should.) OK. Now what? If you save, you'll be paying later.

Just another example of the short term issue we have in this culture.

 

[atmsmshr]

Five-thirds? I think you need more coffee

But I think your point is correct.

Similar to the Car Talk guys telling listeners to stay tuned to the 'third-half' of the show.

Statistics and the truth. (you know the rest)

 

[RetireBy90]

Just to be clear, I only posted it as an outlier. I normally read any articles about IRAs and retirement savings, even if they don't remotely apply to me just to hear other points of view (Yes, often discarding ones such as the subject) and perhaps find another wrinkle to the subject.

If you are in a 0% bracket in retirement then you probably don't put any funds into an IRA either Roth or traditional.

 

[JoeWras]

What's wrong with five thirds?

 

[CaptTom]

I think that anyone who cares enough about their assets and retirement savings to read this forum will likely have enough of a nest egg at retirement to make a ROTH worthwhile.

I've noticed this trend, too. My first post here was something about my "shoestring retirement." There used to be posts about re-using dryer sheets.

I think I have enough to get by. But it's highly unlikely that I'll be in a higher tax bracket when I start withdrawals than I am now. So, no Roth for me.

That's OK. I still learn a lot, maybe more, as the "poor boy" on the forum.

 

[RunningBum]

There is no "one size fits all", and I don't think the article is saying that either. For at least some of us here, deferring income (tIRA or 401K) was the right move because of high enough earnings putting us in a higher tax bracket than we'd be in during retirement, especially ER. I have no regrets.

 

[REWahoo]

What's wrong with five thirds?

Ah, Fifth Third Bank.

I have some "vivid" memories of being a vendor to that bank and dealing with the president of one of their regions. One of the most unpleasant human beings I ever had the misfortune to encounter.

 

[braumeister]

Ah, Fifth Third Bank.

I have some "vivid" memories of being a vendor to that bank and dealing with the president of one of their regions. One of the most unpleasant human beings I ever had the misfortune to encounter.

Interesting. We, and everyone we know here in their headquarters region, have an intense dislike for Fifth Third's operations. Worst customer "service" on the planet.

 

[sengsational]

Looks like a case of the tail wagging the dog.

Study says people don't pay much tax in retirement. OK. Why? I say it is because they don't save enough in IRAs and 401ks.

Study suggests people should use tIRA. (Doesn't mention 401ks, but it should.) OK. Now what? If you save, you'll be paying later.

Just another example of the short term issue we have in this culture.

I didn't click into the article. I figured someone would explain it. And you did. I hate to give them the click just to find out it's a no-op.

 

[Born2Fish]

There is no "one size fits all", and I don't think the article is saying that either. For at least some of us here, deferring income (tIRA or 401K) was the right move because of high enough earnings putting us in a higher tax bracket than we'd be in during retirement, especially ER. I have no regrets.

+1.

I was maxxing out 401k and spousal IRA during peak salary work years at a 22% marginal tax bracket.

Now in early retirement years I can ROTH convert at a 12% tax rate.

 

[CardsFan]

Similar to the Car Talk guys telling listeners to stay tuned to the 'third-half' of the show.

Statistics and the truth. (you know the rest)

I kinda figured that, but couldn't resist

On topic: While I wish I had more in Roth, the reality is that most of it went into the tIRA at 28+% marginal rate, so the deduction was worthwhile and, even with a rather large tIRA, odds are I will get most of it out, on average, at that rate or lower. So, no harm, no foul.

My recommendation to young workers would be to use Roth early on while you are lower income, and tIRA when you have higher income.

 

[JoeWras]

Interesting. We, and everyone we know here in their headquarters region, have an intense dislike for Fifth Third's operations. Worst customer "service" on the planet.

Sorry I started a derail, I just always got a laugh out of their name. I'm like, why isn't it 1 and 2/3 bank? You know, I'm an engineer. A math thing.

They are trying to get a foothold in our region. I suspect the only customers there are the ones that got transferred. Never heard any excitement about them.

 

[atmsmshr]

Interesting. We, and everyone we know here in their headquarters region, have an intense dislike for Fifth Third's operations. Worst customer "service" on the planet.

Fifth Third is our current mortgage holder. On my mind since we are refinancing a VA IRRL within the week. When I called their mortgage department, they declined to refinance my rate to the lowest. Onward-Ho to Quicken Loans!

(Yes - I am one of THOSE PEOPLE who never believed in early mortgage payoff, and that low interest serviceable debt on real estate is actually a good thing in the portfolio.)

 

[armor99]

Looks like a case of the tail wagging the dog.

Study says people don't pay much tax in retirement. OK. Why? I say it is because they don't save enough in IRAs and 401ks.

Study suggests people should use tIRA. (Doesn't mention 401ks, but it should.) OK. Now what? If you save, you'll be paying later.

Just another example of the short term issue we have in this culture.

Well said.... like most things in life, I think it comes down to culture. I was lucky... a friend helped to educate me when I was around 29... all the reason why... “HEY!!! You need to start investing!!!!”
My family was never really big into that. So it was not passed on to me. I fail to see why financial literacy cannot be taught at the HS level. Now there is a tax I would gladly pay... [emoji3]

 

[audreyh1]

Just read piece about a Boston College study Saying the general public might just be better with a traditional IRA and the tax deduction at your current rate.

https://www.marketwatch.com/story/d...until-you-read-this-11608051128?siteid=yhoof2



I'm still telling the kids to put the money into Roth and converting the remaining TIRA to Roth this year and next. YMMV IMHO BYOB

I think this would be true for the vast majority of retirees who have little in taxable savings and are mostly dependent on SS. They will likely have a lower tax rate once they stop working.

For high earners amassing large retirement portfolios, funding Roths can make sense, but you have to look carefully at your tax margin trade offs working versus retired.

 

[Gumby]

There is no "one size fits all", and I don't think the article is saying that either. For at least some of us here, deferring income (tIRA or 401K) was the right move because of high enough earnings putting us in a higher tax bracket than we'd be in during retirement, especially ER. I have no regrets.

Me neither. We put the majority of the money in our 401k/403b/457 plans when we were in the >35% federal marginal tax bracket (at one point 39.1%) and 7.5% state marginal tax bracket. I doubt we will ever see those rates again, so it was a win for us.

 

[latexman]

FYI

What began as the Bank of the Ohio Valley in 1858 was sold to the Third National Bank in 1871, which then merged with the Fifth National Bank in 1908. According to company lore, the name Fifth Third was chosen over Third Fifth out of deference to the growing temperance movement at the time.

The temperance movement is a social movement against the consumption of alcoholic beverages.

All because they didn’t want to say Third Fifth, ha!

 

[audreyh1]

My recommendation to young workers would be to use Roth early on while you are lower income, and tIRA when you have higher income.

That’s smart. But you can get to the point where higher income prevents contributions to Roth.

 

[Chuckanut]

Sorry I started a derail, I just always got a laugh out of their name. I'm like, why isn't it 1 and 2/3 bank? You know, I'm an engineer. A math thing.

How about 1.666666666666666666666666666666666666666666666666666666666666666666666........ to infinity and beyond bank?

Or somebody, please just give them the missing third and they can call themselves Second National Bank.

 

[Out-to-Lunch]

You can read the original brief here: https://crr.bc.edu/wp-content/uploads/2020/12/IB_20-16_.pdf

They essentially conclude that 4/5 of retirees will pay negligible taxes in retirement.

As for what wealth that corresponds to, the average retirement wealth of those in the 4th quintile is about $350k (exclusive of pensions and SS). The average for the 5th quintile is about $770k. The average for the top 5% is about $950k. (They note that the data don't capture the truly wealthy very well, depressing the average.)

 

[LOL!]

I agree with the article. Folks also should know that a significant fraction of families do not pay any income taxes in the first place. Years ago, Romney said "47%" which was true, so let's make it 45% or so.

As for 401(k) versus IRA, one has get real. Many 401(k) plans are worse than an individual contributing to an IRA because (a) there may be no match and (b) the fees are high. Besides many workers are not covered by 401(k) or 403(b) plan in the first plan.

So a family paying no income taxes and not covered by a decent 401(k) / 403(b) should invest in Roth IRAs if they can. That's partly because Roth IRA contributions can be withdrawn at any time without any penalty. Most people do not know that. And banks and financial salesreps are not going to tell them that either. Salesreps may even have clients put Roth IRA in annuities with significant early withdrawal penalties.

So Munnell and her Boston colleagues should advocate for a low-cost universal retirement option for ALL people much like the Federal Thrift Savings Plan. Every time something like that is floated, the financial services lobbyists jump in and shoot it down or agree as long as they can get 1% to 5% fees out of such a program.