Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Old 03-20-2019, 01:44 AM   #21
Recycles dryer sheets
 
Join Date: Dec 2013
Location: Houston
Posts: 166
When I first became aware of Roths, they were offered as IRAs only, not 401ks, that or my employer didn't offer the option, so I began contributing to a Roth IRA at the maximum amount each year in addition to maxing out my 401k at work. Best of both worlds IMO - get the immediate tax savings by having less of my salary taxed & also put $ in an account that will never be taxed + all the flexibility as described above.

Now that I am working part time for very low pay, I have a Roth 401k to which I contribute just enough to get the employer match, continue to contribute the max to my Roth IRA every year, & did a small Roth conversion last year. No detailed plan yet, but a general goal of converting approximately half my starting traditional IRA value to Roth by the time I have to start RMDs.
HtownRose is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 03-20-2019, 07:01 AM   #22
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 10,252
For many taxpayers, a traditional IRA is not deductible because they have a 401(k) or 403(b) at work. In such a situation, a Roth IRA is the option. One really has no choice ... unless they are low income and have no money to contribute.

Yes, they could make a non-deductible traditional IRA contribution and convert it to a Roth IRA, but why do two-steps when one steps works?

So I am not surprised that Roth IRAs are suggested so often. Indeed, any financial advisor worth anything that has for a client someone who is already contributing to a work 401(k) or 403(b) has to suggest a Roth IRA for retirement over anything else, don't they?
LOL! is offline   Reply With Quote
Old 03-20-2019, 07:27 AM   #23
Thinks s/he gets paid by the post
 
Join Date: Mar 2009
Posts: 2,969
As others have stated the Roth IRA is a very useful tool well beyond the scope of current tax bracket. I view it as an opportunity and emergency fund which can be tapped at any time. With no tax considerations I can stick very close to my current annual income and taxes. However if a real estate deal comes up I can jump on it and access funds within a few days. Of course it would have to be a deal of a lifetime ( of which I've had a few) to drain the account. Along with HSA, RMSA, tIRA, Series I Bonds, CD's etc the Roth provides a significant diversifier for a source of $$$.
__________________
Took SS at 62 and hope I live long enough to regret the decision.
foxfirev5 is offline   Reply With Quote
Old 03-20-2019, 07:42 AM   #24
Thinks s/he gets paid by the post
VanWinkle's Avatar
 
Join Date: Oct 2017
Location: Tellico Village
Posts: 2,585
Quote:
Originally Posted by ziggy29 View Post
I think that to some degree, it involves an honest assessment of what you think the future is going to be like.

Not only what are tax rates going to be in the future, but how much income do I expect to have in retirement? Do I expect to be moving to a state in retirement with a higher or lower state income tax rate? Do I think I would be subject to RMDs that kick me into a higher tax bracket? These questions, and more, may influence which way you go.

That said, none of us has a crystal ball or total clarity about our future. For that reason, just as we diversify our investments among different stocks, different sectors, different asset classes... we can diversify with taxable accounts, conventional retirement accounts AND Roth retirement accounts. This gives more flexibility in terms of "engineering" your future income -- to maximize the benefit of lower tax brackets, to keep taxable income just below a certain thresholds (such as MAGI for ACA purposes), to harvest long-term capital gains while in lower brackets and to harvest tax losses to offset other capital gains.
Great response!! It is not all of one thing, but a variety of accounts that lead to the ability to control taxable income. RMDs are fine as long as they don't put you in a tax crunch with other sources. I can handle the taxable income with other sources that are tax free and pay a minimum of federal and state taxes.
__________________
Retired May 13th(Friday) 2016 at age 61.
VanWinkle is offline   Reply With Quote
Old 03-20-2019, 08:01 AM   #25
Moderator
Jerry1's Avatar
 
Join Date: Nov 2014
Posts: 9,021
For me it’s the balance between RMD’s and today’s tax brackets. With SS and RMD’s, I will most likely be in the higher bracket. Maxing out the 12% bracket is therefore a easy decision, especially since I can live on my taxable account and live pretty well. That allows me to get the money out of my IRA, lowering future RMD’s and paying at lower tax rate. Whether to go into or max the next bracket (currently 22%) is a harder decision but mathematically, it makes sense.

Don’t forget. No, you cannot predict the future of tax rates but we’re re in the midst of a temporary tax law. The brackets are 12% and 22%. They will go back to 15% and 28% unless Congress makes them permanent. I can’t know for sure, but if all congress has to do is nothing in order to increase taxes, then I think it’s a good bet that the brackets will go back up.

Remember though that if you’re over 59.5, you don’t need a ROTH to get a lot of the benefit. Just taking a distribution will lock in the lower tax rate and lower future RMD’s. You’d just be giving up the tax free benefit of a ROTH. Remember, that tax free status only applies to the earnings of your ROTH. The distribution is already taxed and will not be subject to tax again whether it’s in a ROTH or not.

So to me, the ROTH has the best benefit to someone who is under 59.5 because they can convert money out of their IRA into a ROTH without the early withdrawal penalty. It also has benefit to someone who can live long term without needing that money. If you put it in a ROTH for say 6 years, all you’ve done is shielded from tax the earnings you made in those 6 years. Certainly something, but not likely some big bonanza. Let those earnings grow 20 years and now you’ve probably shielded a serious chunk of change.
__________________
Every day when I open my eyes now it feels like a Saturday - David Gray
Jerry1 is online now   Reply With Quote
Old 03-20-2019, 02:13 PM   #26
Dryer sheet wannabe
 
Join Date: Oct 2015
Location: global_options
Posts: 17
So many of the responses are spot on. They reference planning now as well as for the future (as best we can).

We should have used Trad IRAs instead of Roths for our “overflow” savings.

I made the mistake for a number of years funding the Roth after maxing our 401ks. My thinking was either “continue funding a brokerage acct or putting some of that in a Roth and never being taxed again.” Like free tax savings instead of stashing in a brokerage.

Looking back (now in LifeInFIRE) with having years of probable 12% (15%) bracket optimization windows ahead of us (love 0% Fed LTCGs) we should have funded Trad IRAs when possible saving high 20’s% and then Roth converting at 12/15%. That mistake cost us 10%+ taxes on our initial Roth contributions.

If you are low in the 12% bracket (FIRE), it’s possible each year to convert what was many years of $6k contributions.

However, being better at tax bracketing and planning (we all get wiser, right?) at least we’re not waiting until RMDs (Required Income Distributions) to learn a bigger (oops) lesson…assuming we kind of understand future tax brackets.
kskmfire is offline   Reply With Quote
Old 03-20-2019, 05:03 PM   #27
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 26,801
Quote:
Originally Posted by rollergrrl View Post
Quote:
Originally Posted by RunningBum View Post
Which gurus are unconditionally pushing Roths?
Driving home, on the radio Listening to Dave Ramsey, seems that is what he is always telling people to do. You never hear it depends...I know it’s supposed to be entertainment...
Ugghhh! Yep, I really, really dislike Dave Ramsey. It's all or nothing with him on everything. No conditions, no thought, just do as I say. He treats his audience like idiots.

I know, some will defend him, saying his audience is mostly ignorant ( a description, not a put-down), of things financial. But he doesn't teach them, he keeps them ignorant - follow the guru! And feeds them a lot of bad information, some of it good for Dave, not so good for his audience.

-ERD50
ERD50 is offline   Reply With Quote
Old 03-20-2019, 05:14 PM   #28
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 13,155
Ramsey claims that you should do a Roth even if you (30 yr old) expect your retirement tax rate to be as much as 5% higher in retirement. Beyond that, probably not.

https://www.daveramsey.com/blog/do-y...for-retirement

Quote:
Roth IRA Tax Benefits for (Nearly) Everyone

Make sure you catch that last difference, because it’s a big one. When you retire, the money you withdraw from a traditional IRA is taxable while the money you withdraw from a Roth IRA is tax-free.
A study by T. Rowe Price showed that the benefits of that tax-free retirement income make a Roth IRA a better choice for nearly everyone investing for retirement. “Even though the Roth IRA contribution doesn’t qualify for an income tax deduction, decades of compounding tax-free money can generate more spendable income in retirement,” the study concluded.(1)

For example, a 30-year-old investor whose income tax rate drops by 5% in retirement will still have 9% more spendable retirement income by using a Roth IRA rather than a traditional IRA. If his rate remains the same, as is the case with most retirees, he’ll have 17% more non-taxable income. Investors age 50 or older who experience a 6–10% drop in their tax rate could, however, be better off with a traditional IRA. “For investors nearing retirement, there isn’t enough time for the money to compound at a rate to counter the significant reduction in their tax bracket during retirement,” the study explained.
I get 404 (page not found) for the TRowe Price source he uses.

Anyone want to try the math to see if that's true?
RunningBum is offline   Reply With Quote
Old 03-20-2019, 08:31 PM   #29
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 10,252
Quote:
Originally Posted by kskmfire View Post
So many of the responses are spot on. They reference planning now as well as for the future (as best we can).

We should have used Trad IRAs instead of Roths for our “overflow” savings.

I made the mistake for a number of years funding the Roth after maxing our 401ks.
...
With those 401(k)s, were you even eligible for deductible tIRA contributions? I know that we were not. And we were not eligible for Roth contributions either (income too high). And before 2010, people with modified AGI above $100K could not do Roth conversions.

We had to put money into taxable brokerage account.

That is, sometimes laws force one upon a specific path and there is nothing that one can change about it.
LOL! is offline   Reply With Quote
Old 03-20-2019, 09:04 PM   #30
Dryer sheet aficionado
 
Join Date: Mar 2019
Location: Newhall
Posts: 42
I don't know what future tax rates will be, so I am (tax) diversifying by holding assets in Roth IRA's and traditional IRA's.
__________________
Just another guy on the internet.
JAGOTI is offline   Reply With Quote
Old 03-20-2019, 09:07 PM   #31
Thinks s/he gets paid by the post
 
Join Date: Mar 2013
Location: Coronado
Posts: 3,626
Quote:
Originally Posted by LOL! View Post
With those 401(k)s, were you even eligible for deductible tIRA contributions? I know that we were not. And we were not eligible for Roth contributions either (income too high). And before 2010, people with modified AGI above $100K could not do Roth conversions.

We had to put money into taxable brokerage account.

That is, sometimes laws force one upon a specific path and there is nothing that one can change about it.
Yup. This is why my tIRA has a basis. Instead of putting everything above the 401K savings in a taxable account, we chose to max out our tIRA contributions even though they were non-deductible. We were able to convert DH's tIRA to Roth in 2010, but by then mine had a mix of non-deductible contributions and 401K rollovers, so the tax hit would have been too great.
cathy63 is online now   Reply With Quote
Old 03-20-2019, 09:37 PM   #32
Full time employment: Posting here.
 
Join Date: May 2016
Location: Tacoma
Posts: 520
Love our Roth IRAs.

We will need to milk our 401k accounts to keep the tax bill down over the next decades, but if any big purchase arises, we can tap the Roth without concern about the tax implications (as in, being taxed at the highest bracket).

If I was still a young worker, I would pour every possible dollar into Roth accounts over tax deductible. This is now easier than ever with Roth 401k options, as well as Roth IRAs.
oneill225 is offline   Reply With Quote
Old 03-25-2019, 11:11 AM   #33
Recycles dryer sheets
 
Join Date: Oct 2018
Posts: 59
Quote:
Originally Posted by oneill225 View Post

If I was still a young worker, I would pour every possible dollar into Roth accounts over tax deductible. This is now easier than ever with Roth 401k options, as well as Roth IRAs.

That is exactly what my wife and I are doing. We are young, have young kids, and because of the Tax Cuts and Jobs Act we are quite literally in the lowest tax bracket we will probably ever see again (22%)...aside from having another kid of course.


As far as negativity towards Dave Ramsey, I am a bit surprised by it. A majority of Americans want simplicity and Dave preaches a very simple but proven effective method. His method is radical but when you listen to some of his callers, they need radical in their lives! Sure one can split hairs with his ideology, but no one cannot deny his methods are effective for 90% of all situations.
natetheb is offline   Reply With Quote
Old 03-25-2019, 12:05 PM   #34
Thinks s/he gets paid by the post
 
Join Date: Jan 2018
Location: Elyria, OH
Posts: 1,937
Quote:
Originally Posted by oneill225 View Post
Love our Roth IRAs.

We will need to milk our 401k accounts to keep the tax bill down over the next decades, but if any big purchase arises, we can tap the Roth without concern about the tax implications (as in, being taxed at the highest bracket).

If I was still a young worker, I would pour every possible dollar into Roth accounts over tax deductible. This is now easier than ever with Roth 401k options, as well as Roth IRAs.
My husband's 401k is a mix of pretax, after tax, and Roth. If we could go back in time, it all would have been after tax and then, when it became available to him, Roth.

When we married, he'd already been contributing pretax for a few years. When I learned we were in the lowest tax bracket, I suggested that it made no sense to not pay the taxes right then, when you can only go up in brackets (barring tax law changes, of course). He switched to after tax. For awhile, we'd regularly revisit the issue and change if needed. For example, during the years I took RMDs from an inherited IRA, we switched to pretax.

At this point, my projections show that keeping contributions Roth will make the most sense, to try and keep RMDs down in future. Even so, about 82% of his total balance is pretax. Company contributions are all pretax, no matter how you've structured your contributions.
gwraigty is offline   Reply With Quote
Old 03-25-2019, 12:49 PM   #35
Thinks s/he gets paid by the post
HI Bill's Avatar
 
Join Date: Dec 2017
Posts: 2,517
Quote:
Originally Posted by oneill225 View Post
If I was still a young worker, I would pour every possible dollar into Roth accounts over tax deductible.
I would obtain the company match first in the 401(k), then if you can't do both (ROTH IRA and 401(k), put the extra into the ROTH IRA. However, you really do need to use a ROTH vs. 401(k) calculator to determine which ends up ahead in your circumstance. This is not one-size-fits all, and depending on your current and future tax rates, as well as age and years to retirement, the tax-deferred may or may not come out ahead. And if you're planning to retire at 55 or later, you can still access the tax-deferred funds penalty free.
HI Bill is offline   Reply With Quote
Old 04-06-2019, 01:19 PM   #36
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W Just West of Woman Hollering Creek
Posts: 6,667
When I qualified to make contributions to a Roth years ago my main incentive was that I was making an investment in my future (retirement). It worked! I now have a big stash of cash that I can access at any time and not be taxed on.


Keeping it simple for almost 75 years...
__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Confused choosing between: 401K, Roth 401K, Roth IRA or Traditional IRA? krldrummerboy FIRE and Money 22 05-26-2016 12:46 PM
Can I do both Backdoor Roth IRA and Mega Backdoor Roth IRA? growerVon FIRE and Money 8 07-30-2015 02:04 AM
converting IRA to Roth IRA based on new Roth Rules vs. 72t mbmmccoy FIRE and Money 27 09-28-2009 07:27 AM
Questions about limits surrounding ROTH IRA, SEP IRA and ROTH 401k RockSplat FIRE and Money 14 06-08-2009 01:30 PM

» Quick Links

 
All times are GMT -6. The time now is 03:33 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.