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Old 09-16-2023, 06:08 PM   #41
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I always maxed out my 401k that was usually limited to what I could contribute as a highly compensated employee. Then I maxed out my tIRA then I maxed out my non-working DW's tIRA then I maxed out my Roth IRA. I've been retired for 11+ and been able to to stay in the 12% tax bracket and manage my income for maximized ACA subsides before Medicare. Now that I am 66 I've been taking more out of tIRA each year but still in the 12% bracket. So tIRA has worked out for me.
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Old 09-17-2023, 07:00 PM   #42
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When folks quote averages, my standard comment is: put one foot in a pot of boiling water, and the other in a bucket of ice water. On Average, you are comfortable.

Yeah, I know, if you look at the thermodynamic formulas this is not exactly true, but you get the drift.
Yeah, I don't know about all that when it comes to living to a ripe old age.

But I really like those statistics suggesting that the longer you live, the longer, well, you know, the longer you will live. What a concept!
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Old 09-17-2023, 08:19 PM   #43
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One thing not addressed by the article/ad and not common in analysis of the Roth vs Trad question is the self limiting nature of the tax advantages of pre-tax contributions. It is like a tax see-saw, where contributions today lower your current tax rate, but increase it in the future. Save enough pre-tax for long enough and you'll undo the tax arbitrage that is the basis for choosing pre-tax contributions in the first place. Granted, it takes a pretty hefty balance in traditional for most individual situations, but not outside the experience of long term dedicated savers, especially those with pensions and large SS checks. I suspect several members here may have put more into pre-tax over a career than was optimum. In my case, it looks like $1.2M balance in pre-tax when RMDs start is going to undo the tax advantage I received on the contributions. Depending on market performance over the next 8 years, I very likely should have put some of my pre-tax contributions into Roth instead. If I live into my 90's and the market has a good few decades, the eventual tax consequences are pretty large. 1st world problems, but an issue totally overlooked by the article/ad.

TL-DR Your anticipated pre-tax balance at RMD age is a major factor in choosing Roth/pre-tax while working.
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Old 09-18-2023, 08:34 AM   #44
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I think some important things many people overlook when running these calculations is that the Roth IRA was unavailable until the 1998 tax year, that it has always had relatively low limits on the amount of allowed contributions and that it was phased out and eventually eliminated for those over a certain AGI. For the vast majority of the 20 years between the time Roth's started and we retired, the young wife and I were entirely ineligible to contribute to a Roth. There was a short period (one or two years) when I first left private practice where we were eligible to contribute a few hundred dollars, so we did. And a good thing, because now we can do Roth conversions.

Traditional IRA's also have always had paltry contribution limits and an AGI threshold for deductibility. We did contribute to tIRA's at first, but stopped when we could no longer do it pre-tax, which was back in the 90s. So, essentially, our choice was 401k, 403b, 457 or taxable saving. During the years when we were avoiding marginal federal tax rates of 39.5%, it was an easy choice, and we will never get back to that bracket in retirement.

EDIT TO ADD:

Also overlooked is the fact that, for those who are fortunate to have a 401k match, it would be foolish not to contribute in order to take advantage of that match.
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Old 09-18-2023, 08:39 AM   #45
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Just to summarize what i read... you invested in regular 401 when you had lower taxes... you now have higher taxes and are investing in ROTH 401...


That seems really backwards to me...
Yes, it probably is...

For years my wife was in a tax deferred 401k plan at work. At tax prep time, because of our income levels it was advantageous for us to contribute to a trad IRA. Doing this flipped our tax return from owing taxes to getting a refund. We were putting $12K in our IRAs and the government was sending us money. Win-win.

Then I realized I didn't have any money saved in Roth's. So, just in the interest of having flexibility with future RMAs I switched to Roth's, in both our workplace 401k's.

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if someone is not in a high tax bracket than investing in a ROTH seems like the best thing to do... you co not have to worry about ROTH conversions later in life when you have made a lot of money in the regular account... and you have a lot of space to invest in regular when you are in a higher tax bracket..
When you say "regular account", do you mean a typical taxable brokerage account? (And not a traditional tax deferred IRA or 401k account?)
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Old 09-18-2023, 10:24 AM   #46
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A friend of mine was in awe of an executive coworker who has 100% of his 401K/IRA money (to the tune of $10M) in Roth. I can't think of any way that could be done without doing it in an incredibly high marginal tax rate. I'm sure it would feel awesome to be retired with that much money in Roth but mathematically I very much doubt it was the most tax efficient thing to do.
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Old 09-18-2023, 12:58 PM   #47
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A friend of mine was in awe of an executive coworker who has 100% of his 401K/IRA money (to the tune of $10M) in Roth. I can't think of any way that could be done without doing it in an incredibly high marginal tax rate. I'm sure it would feel awesome to be retired with that much money in Roth but mathematically I very much doubt it was the most tax efficient thing to do.
This sometimes comes as a result of a self directed IRA that might include private shares and real estate (with high growth potential, like startup shares) plus an aggressive (re)investment strategy. The leading example of this is Peter Thiel, with Billions in Roth (from $2K in 1999).
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Old 09-21-2023, 03:51 PM   #48
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Barrons article says the opposite - almost all workers should contribute to Roth

https://www.barrons.com/articles/rot...vings-b62194f3
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Old 09-21-2023, 04:04 PM   #49
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Old 09-21-2023, 05:24 PM   #50
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Why does the Roth 401k net you more money in retirement?

It’s simple. You’re contributing more out-of-pocket dollars by investing the same amount into a Roth (since you’re using after-tax dollars).

Remember the example above? A $10,000 contribution into a 401k saves you $2,200 in taxes, so you’re effectively only paying $7,800.

By investing in a Roth, you’re essentially paying $2,200 in taxes and still investing $10,000 into the Roth.

Sure, it’ll net you more in retirement, but only because you’re shelling out an additional $2,200 to do it!
I'm pretty sure based on their logic, their calculator "fixes" this and if so all their math is extremely flawed.


I don't usually like any of these discussions because the reality is the decision of Roth/Traditional 401k should be done on a year by year basis and can change throughout time as laws change, rates change, you change jobs, you suddenly inherit money, etc... and its not a 100% either/or. My honey contributes enough pre-tax to reduce his income to just under the next tax bracket and then dumps the rest into his Roth 401k.

I put into the traditional 401k as a single high earner, figured I needed the tax breaks. One additional perk I hadn't planned on was that by the time I took it out I'd be married thus lowering my tax bracket even more.
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Old 09-21-2023, 06:23 PM   #51
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My employer was pretty early rolling out a 401k plan in ‘83 but I can’t recall when the provided the Roth version. Google tells me the Roth was authorized in 2006. I think I did not sign up till 2012 or thereabouts. At that point the tax deferral was not as important to me.
I liked the fact that our company match was always tax deferred so you were still adding to the traditional account.
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Old 09-21-2023, 07:17 PM   #52
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Traditional was right for us, but not necessarily for the reasons discussed.

Early in our careers with modest income, a mortgage and children, having the immediate tax break of a traditional 401K was a must.

Late in our careers, Roth 401ks would have been silly because we were in a high tax bracket. Had Roths been available in the middle, they might still have been wrong in hindsight as tax rates have trended down.

Importantly, there was never a guarantee of having a nice, comfy retirement. Many co-workers were let go before they wanted to leave, folks had health problems or family problems interrupt their careers, etc. So taking the immediate tax break of the traditional was probably right from a risk management standpoint too (if you are lucky enough to have a big tax bill in retirement, you didn't get completely derailed during your career).
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Old 09-21-2023, 07:46 PM   #53
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My employer was pretty early rolling out a 401k plan in ‘83 but I can’t recall when the provided the Roth version. Google tells me the Roth was authorized in 2006. I think I did not sign up till 2012 or thereabouts. At that point the tax deferral was not as important to me.
I liked the fact that our company match was always tax deferred so you were still adding to the traditional account.

Never had the 401(k) Roth, so it was "complicated." 1) Contribute to 401(k) until company match was completely absorbed. 2) Contribute to Roth IRA until legal (and any catch-up) amounts filled. 3) Contribute EITHER to the remaining 401(k) and catch-up OR tIRA - in my case in anticipation of converting to Roth at some point. 4) Contribute more to 401(k). Sorta glad that aspect of pre-FIRE is over for me.
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Old 09-21-2023, 09:36 PM   #54
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The article was pretty shallow. In retirement they use an effective tax rate vs marginal rate. Using a marginal rate would lead you to the conclusion that a mix of traditional and Roth would lead to the best outcome. Also it ignores the impacts of the taxability of social security.

They also assume future tax rates will stay the same as today, which may or may not be true.

Also you can effectively contribute more after tax dollars in a Roth

It certainly is true that for many people traditional will make more sense as the primary contribution vehicle, given their marginal tax rates in retirement will likely be lower than during working years. Most people probably should have at least some traditional to fill up the lower brackets in retirement.

In their first example it would have made more sense if they showed traditonal contributions enough to fill up the lowest brackets then Roth for amounts above that. Again even that ignores the fairly complex impacts of social security taxation on marginal tax rates in retirement.
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Old 09-22-2023, 06:43 AM   #55
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Barrons article says the opposite - almost all workers should contribute to Roth

https://www.barrons.com/articles/rot...vings-b62194f3
It's a very fluffy article. It says most workers should contribute for "flexibility" not because they would have more funds later.

It also proposes a funky rule of thumb for determining how to split regular and Roth contributions. The rule of thumb ignores taxes.

The article basically says having money in a Roth is good. Not exactly a news flash.
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Old 09-22-2023, 12:04 PM   #56
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Not intending to derail the topic, but this discussion prompted me to look at how WD's from after-tax t-IRA's are taxed. Ugh, complicated. Kinda wish I'd never been talked into doing any. Seems unfortunately, can’t take a tax-free withdrawal of just after-tax money, leaving any taxable amounts in the account for later. For tax purposes, all the IRA assets get aggregated as one pool of money, even if they are held at different financial institutions. Then taxable amounts are determined on a pro-rata basis, for example if your after-tax t-IRA is 10% of the total, then only 10% of your distributions are tax-free. You can't pick and choose after-tax vs pre-tax distributions.

Did I get that right? Wish I'd just avoided the after-tax contributions, as its a small % but a big headache to track.
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Old 09-22-2023, 12:55 PM   #57
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Yes, that's right. That's why you need always to keep a copy of your form 8606, so you can keep track of your basis.
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Old 09-22-2023, 03:34 PM   #58
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Yes, that's right. That's why you need always to keep a copy of your form 8606, so you can keep track of your basis.
Thanks. I'm pretty sure my advisor said non-ded IRA contributions would be a good idea because the earnings would grow "tax-free" (which I'm starting to understand really means "tax-free" until its time to pay the tax, i.e. tax-deferred).

I understand encouraging me to save above and beyond my 401K, but see little benefit to the non-ded IRA vs the record-keeping/form-filing hassle and the added complexity. At least DW was able to do back-door Roth conversions each year with hers (I think because she did not have a 401k or pension plan).
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Old 09-22-2023, 04:04 PM   #59
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I did after-tax 401(k) contributions because I didn't know any better. That was a mistake, I think. Roth 401(k) wasn't available to me at the time. I should have put that money in taxable stock accounts. A lot of tax-deferred/Roth discussions totally ignore the advantageous tax treatment of LTCGs, especially if you avoid high dividend stocks (tax drag). I think that would have been better than being locked up in a traditional 401(k) exposed to ordinary income taxes.

Per some of the discussion above, I have a tranche of after-tax "trapped" in my 401(k). Per my 401(k) rules I can do a Roth 401(k) conversion. The contributions and growth roll over and I pay tax on the growth. Then could roll over to separate tIRA and Roth IRA.

I'm looking for a good opportunity to execute that plan when I have the tax space headroom.
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Old 09-23-2023, 12:28 PM   #60
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A lot of your planning is going to stem from if you will be retiring into a higher or lower tax bracket.

Once you figure that out, the rest is pretty easy to determine. Pay a couple hundred $ for a tax consultation with a good RIA fee based fiduciary planning service with tax agents on staff for a good overall discussion.
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