Boston College says TIRA over Roth ???

[audreyh1]

I had an uncle pass away a couple of years ago at 93. He had a heart attack at 46.

DF had a minor heart attack late 50s, a stent early 70s, and made it to 90. He took blood thinner for a while, but otherwise no drugs.

 

[Out of Steam]

Often forgotten or at least ignored, is "most" married couples will, at some time or another become widows or widowers. Then their tax will be based on single in a higher tax bracket than it they were still married.

Hadn't really thought of that, but it's true. What may counteract that is that spending for the elderly is more likely to be on tax-deductible medical expenses.

Our retirement funds are 95+% in standard IRAs. Plan to draw a minimum of 3% a year regardless of our income needs. The extra funds can go into a taxable bank account or prepayments on our small mortgage.

 

[CaptTom]

Another big benefit in the "wash" situation is, when you withdraw from the tIRA it is considered income and other financial situations apply such as taxation of SS benefits, or IRMAA, ACA subsidies, etc. When withdrawn from a Roth, the spendable income is the same, but it is free money. It is not counted as income. No impact on any of those.

In a wash situation, I always suggest going the Roth path. In addition, considering today's low tax rates, I would not bet on them being at, or lower than today's rates.

Good points. I'm starting to do a 180 on this and come around to the prevailing view here about ROTH conversions.

Since I'm near the bottom of my current tax bracket, I could transfer to a ROTH to bring me up near - but still below - the top of it.

Assuming I won't be in a lower tax bracket later in life, it's a "wash" at worst. If I ever did bump up, it would be a net gain. And there could be other benefits, as you mention above.

Hmmm. I have a week to figure this out for this year. Not sure how long it would take to set up a ROTH and do the transfer. Then calculate my taxable income.

 

[teej1985]

If I didn't have a government job with an expected pension, I'd probably be going all traditional just to fill up the standard deduction and bot bottom tax brackets in retirement. That being said, I converted a lot to Roth while I was unemployed and while in the 12% tax bracket because I have to think we'll never see rates lower than this..

Having massive traditional accounts would not only cause huge RMD's, but also trigger IRMAA after age 65, and potentially causes more of your social security benefits to be taxed.

My uncle complains about IRMAA ever since he turned 65, and it seems to be the bane of many on the internet as well.

It seems like to best way to avoid the frustrations of old age extra taxation is to minimize what accumulates in those tax deferred accounts. Of course, this depends on future taxation laws that are obviously unknowable. Perhaps the LTCG and QD taxation becomes less beneficial in the future....

 

[harley]

IMO the best thing to do is to put money in the tIRA/401K while working, assuming a pretty decent income. But also save outside the non-taxable accounts. Then retire early, and use the after tax accounts to both live on and to pay the taxes on Roth conversions while staying in a low bracket. This will make you a winner in the tax game. If you retire early enough you should have enough years to move most of your pre-tax accounts into a Roth before running into the RMD/IRMAA/tax torpedo times.

I think that's the best way to go, because that was my plan (modest, aren't I?). Of course, it didn't work out perfectly for me, as we ended up with too much income in our semi-retirement, which limits our available bracket space. First world problem. But I agree with the others that think maxing out Roth conversions in any bracket below where you were when you put the money in the pre-tax account. I've got 5 or 6 years left to finish, although I'll need to do the IRMAA balancing act. But if you can convert into a Roth at a lower bracket than you put it in at, you're coming out ahead. It seems a no-brainer to me (assuming things like enough time an available cash to pay the taxes).

As far as the OP's article, I think it's probably true that most people should just do the pre-tax saving. But if you plan on ER you aren't in that group, and should consider better and more flexible options.

 

[TheWizard]

Tax rates, at least marginal Federal tax brackets are not the whole story.
I was in the 28% marginal bracket for first few years after retiring in 2013.
I'm now in the 24% marginal bracket after the latest tax act went into effect.
But I pay more Federal income tax now, on similar AGI, because I can no longer deduct all of my property tax and state income tax (SALT).

Obviously unclear how things will change in 2026 when reversion might happen...

 

[TheWizard]

I read both the MarketWatch summary article and the BC PDF article.
The BC PDF is more comprehensive and discusses how employer plans (401(k) and 403(b)) make a difference.
MarketWatch ignores those plans.

For people with decent employer DC plans, I would strive eventually to max out tax-deferred contributions to those as well as putting $7000/year into your Roth IRA.

Then 5-7 years before anticipated retirement, do some ballpark estimating on your retirement income plan.
Thing is: 5-7 years before retirement, most people's income is as high as it's ever been, so tax-deferred contributions are still a good idea.

Just be careful not to work and accumulate too much or you too will have higher AGI and taxes in retirement than when working.
Not everyone wants to be like Jeff Bezos, right?

 

[pb4uski]

Tax rates, at least marginal Federal tax brackets are not the whole story.
I was in the 28% marginal bracket for first few years after retiring in 2013.
I'm now in the 24% marginal bracket after the latest tax act went into effect.
But I pay more Federal income tax now, on similar AGI, because I can no longer deduct all of my property tax and state income tax (SALT).

Obviously unclear how things will change in 2026 when reversion might happen...

I guess I would argue that things like SALT impact your marginal tax rate, but not the decision. Assuming that you don't strattle tax brackets, when you deferred that income you saved 28% in taxes and when you withdraw you'll pay 24% in tax so you're ahead by 4%. Not life changing, but worth the effort.