Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Roth IRA bad information
Old 03-19-2019, 02:49 PM   #1
Recycles dryer sheets
 
Join Date: May 2017
Posts: 60
Roth IRA bad information

It feels like a lot of bad information out there regarding Roth IRAs. Seems like gurus are pushing them over traditional IRAs no matter ones tax bracket. Personally, I feel they only seem right for people in the lowest tax bracket. I have heard the Argument that taxes will be higher in the future, but history shows something else. Just curious what others thing.
__________________

rollergrrl 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 03-19-2019, 03:00 PM   #2
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,400
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.
__________________

__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
ziggy29 is offline   Reply With Quote
Old 03-19-2019, 03:13 PM   #3
Full time employment: Posting here.
 
Join Date: Nov 2013
Posts: 606
Quote:
Originally Posted by ziggy29 View Post
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.

+1

Diversification, flexibility, no RMD and better for heirs.
NgineER is offline   Reply With Quote
Old 03-19-2019, 03:15 PM   #4
Thinks s/he gets paid by the post
38Chevy454's Avatar
 
Join Date: Sep 2013
Location: Cincinnati, OH
Posts: 2,477
Nice reply Ziggy, it offers additional flexibility in planning. While some FAs may be pushing the Roth, ultimately it is the investor's decision. If they are not knowledgeable enough then they could be making a choice that is not in their best interests. I know my FA (me...) does a good job of considering my best interests at all times.
__________________
The advice we're giving you is invaluable, that's why it's free
Experience is a good teacher, but the tuition can get expensive real fast

Semi-Retired 7/1/16: working part-time (60%) for now [4/24/17 changed to 80%]
Retired Aug 2, 2017; age 53
38Chevy454 is online now   Reply With Quote
Old 03-19-2019, 03:18 PM   #5
Thinks s/he gets paid by the post
HNL Bill's Avatar
 
Join Date: Dec 2017
Posts: 1,862
Quote:
Originally Posted by rollergrrl View Post
Personally, I feel they only seem right for people in the lowest tax bracket.
They are also a great way of having $ available for ER. You can withdraw contributions, tax and penalty-free at any time, even if you retire before 59.5. Many folks don't plan to have enough assessible assets available and realize too late that they're stuck with most of their assets in tax-deferred accounts, which even employing the rule of 72t, may not leave them with enough income.
HNL Bill is offline   Reply With Quote
Old 03-19-2019, 03:18 PM   #6
Recycles dryer sheets
Ready-4-ER-at-14's Avatar
 
Join Date: Feb 2011
Location: chicago
Posts: 373
Quote:
Originally Posted by rollergrrl View Post
It feels like a lot of bad information out there regarding Roth IRAs. Seems like gurus are pushing them over traditional IRAs no matter ones tax bracket. Personally, I feel they only seem right for people in the lowest tax bracket. I have heard the Argument that taxes will be higher in the future, but history shows something else. Just curious what others thing.
To me the people with the least amount in regular iras will have the smallest required minimum distributions and the people with the most in regular iras witll have the largest required distributions (happen around 70.5 ish check details)
Therefore the more you can move regular ira money to roth iras in smaller percentage tax bands the better if you would otherwise be in high tax bands (with normal predicted stock market/investment yields) in the future.
To me roths can save tax money if used properly and early in life.
Ready-4-ER-at-14 is offline   Reply With Quote
Old 03-19-2019, 04:14 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Dec 2014
Posts: 2,428
Quote:
Originally Posted by rollergrrl View Post
It feels like a lot of bad information out there regarding Roth IRAs. Seems like gurus are pushing them over traditional IRAs no matter ones tax bracket. Personally, I feel they only seem right for people in the lowest tax bracket. I have heard the Argument that taxes will be higher in the future, but history shows something else. Just curious what others thing.
I did roth conversions up to the top of the 24% bracket... so would you call this good or bad.

In general it is easiest to justify in the lower brackets. But what if you consider when a spouse passes and you go from MFJ to single? What if you inherit later? Harder to justify when there is an IF or WHEN in the situation.

My bet now is I should do some roth conversions above the 12% bracket since that limits conversion amounts too much. But I am taking a risk it might might not be optimal
bingybear is offline   Reply With Quote
Old 03-19-2019, 04:17 PM   #8
Thinks s/he gets paid by the post
steelyman's Avatar
 
Join Date: Feb 2011
Location: NC Triangle
Posts: 4,528
My traditional/Roth amounts in my retirement accounts are split 50/50. I withdraw annually and rebalance in both the sense of asset classes (stock/bond) and tax treatment (taxable/tax-free) at that time. I think of it as diversifying both ways.

I donít have any bond funds in the Roth accounts to lean toward higher expected growth there. I still have quite a bit of stock funds in traditional IRA because that was the only option for most of the time while working and I was DCA-ing faithfully. So any time I withdraw from tIRA, itís from stocks.
__________________

steelyman is offline   Reply With Quote
Old 03-19-2019, 04:42 PM   #9
Recycles dryer sheets
 
Join Date: May 2017
Posts: 60
Quote:
Originally Posted by 38Chevy454 View Post
Nice reply Ziggy, it offers additional flexibility in planning. While some FAs may be pushing the Roth, ultimately it is the investor's decision. If they are not knowledgeable enough then they could be making a choice that is not in their best interests. I know my FA (me...) does a good job of considering my best interests at all times.

Agree that one needs to be knowledgeable, just feel the some FA and public gurus are blanket cutting their information and a lot of younger/ middle age people are following the information blindly especially regarding tax free is better than Tax deferred. Why the push for tax free?
rollergrrl is offline   Reply With Quote
Old 03-19-2019, 04:53 PM   #10
Thinks s/he gets paid by the post
HNL Bill's Avatar
 
Join Date: Dec 2017
Posts: 1,862
Quote:
Originally Posted by rollergrrl View Post
Personally, I feel they only seem right for people in the lowest tax bracket.
I disagree. My top income is in the third tax bracket (22%).

I max-out the tax-deferred first (401(k)), then max out the ROTH IRA, and contribute to a spousal IRA. I'm over 50, so I can save $25K in 401(k), + $6K in spousal IRA + $7K in a ROTH IRA (if you make too much, you won't be able to contribute these amounts). So, this lowers my adjusted gross income by $31K, while still allowing me to save some in the ROTH for earlier use than at 59.5!
HNL Bill is offline   Reply With Quote
Old 03-19-2019, 04:53 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 9,298
Which gurus are unconditionally pushing Roths?

It's not necessarily only for those in the lowest bracket. If you think your future tax bracket will be higher, or maybe the same, a Roth can be good. No sense in deferring income at a lower rate than you will be paying later.
RunningBum is offline   Reply With Quote
Old 03-19-2019, 04:57 PM   #12
Thinks s/he gets paid by the post
HNL Bill's Avatar
 
Join Date: Dec 2017
Posts: 1,862
Quote:
Originally Posted by rollergrrl View Post
Agree that one needs to be knowledgeable, just feel the some FA and public gurus are blanket cutting their information and a lot of younger/ middle age people are following the information blindly especially regarding tax free is better than Tax deferred. Why the push for tax free?
There are online calculators available that help you decide which is a better investment for you in your situtation, in your tax bracket. Definitely not one-size fits all! For much younger folks, the results generally show that ROTH comes out slightly ahead over 401(k), but with changing tax rates, this is subject to change!
HNL Bill is offline   Reply With Quote
Old 03-19-2019, 04:57 PM   #13
Recycles dryer sheets
 
Join Date: May 2017
Posts: 60
Quote:
Originally Posted by HNL Bill View Post
They are also a great way of having $ available for ER.

I can see why the Roth IRA was started, because it allows savers to touch the money early. But this in itself could actually be bad for younger/middle age savers that are not Disciplined. I wonder if the though behind this account was to stop bankruptcy and delinquent tax payments, because you know the average person would tap into that account.
rollergrrl is offline   Reply With Quote
Roth IRA bad information
Old 03-19-2019, 05:04 PM   #14
Recycles dryer sheets
 
Join Date: May 2017
Posts: 60
Roth IRA bad information

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 itís supposed to be entertainment...
rollergrrl is offline   Reply With Quote
Old 03-19-2019, 05:18 PM   #15
Recycles dryer sheets
 
Join Date: May 2017
Posts: 60
Quote:
Originally Posted by ziggy29 View Post

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.


Thank you for your response. It really is a numbers game!
rollergrrl is offline   Reply With Quote
Roth IRA bad information
Old 03-19-2019, 05:31 PM   #16
Recycles dryer sheets
 
Join Date: May 2017
Posts: 60
Roth IRA bad information

Quote:
Originally Posted by HNL Bill View Post
I disagree. My top income is in the third tax bracket (22%).

I max-out the tax-deferred first (401(k)), then max out the ROTH IRA, and contribute to a spousal IRA. I'm over 50, so I can save $25K in 401(k), + $6K in spousal IRA + $7K in a ROTH IRA (if you make too much, you won't be able to contribute these amounts). So, this lowers my adjusted gross income by $31K, while still allowing me to save some in the ROTH for earlier use than at 59.5!


Yes, but you still choose maxing out Tax Deferred first over tax free. There just seems to be a push for tax free Max over tax deferred max by many money gurus( suze Orman and Dave Ramsey). I know they are for entertainment but their Advice still gets followed.
rollergrrl is offline   Reply With Quote
Old 03-19-2019, 05:38 PM   #17
Recycles dryer sheets
Stonewalker's Avatar
 
Join Date: Mar 2019
Location: Pearland
Posts: 95
After reading these posts, the big question still remains:
What will the dollar be worth when the younger ones try to retire?
Aye, there's the rub.

My youngest makes $80K/year - and that's great. Adjusting for inflation, that still means he has the buying power I had with my starting wage back in 1980.

From my dark perspective, the overspending will catch up to our country - and we'll all suffer.
__________________
Retired 2015. Jesus follower. Author, Husband, Dad, Futurist, Dreamer.
Stonewalker is offline   Reply With Quote
Old 03-19-2019, 05:47 PM   #18
Thinks s/he gets paid by the post
 
Join Date: Aug 2014
Location: Chicago West Burbs
Posts: 1,396
Never underestimate the power of the Roth IRA. It is more than just the incremental tax brackets to consider. Roth is a valuable tool to have in one's toolbox when it comes to FIRE and controlling ACA premium subsidy, and later, IRMMA/Medicare costs and taxable SS in retirement. Those are just a few benefits of the Roth. Backdoor Roths, if one is in that frame of mind, can help to fill the Roth account in stead of having investments in a taxable account. The Roth's protection against RMD's is another tool.

I wish I had started funding my Roth earlier.
CRLLS is offline   Reply With Quote
Roth IRA bad information
Old 03-19-2019, 05:52 PM   #19
Recycles dryer sheets
 
Join Date: May 2017
Posts: 60
Roth IRA bad information

Quote:
Originally Posted by Stonewalker View Post
After reading these posts, the big question still remains:
What will the dollar be worth when the younger ones try to retire?
Aye, there's the rub.

My youngest makes $80K/year - and that's great. Adjusting for inflation, that still means he has the buying power I had with my starting wage back in 1980.

From my dark perspective, the overspending will catch up to our country - and we'll all suffer.


That is pretty dark, but could be a reality. Maybe the push for the Roth IRAs will provide tax money to fix the deficit. This might be stereotyping a little, but this younger generation is known for the tiny house. So maybe the overspending isnít everyone.
rollergrrl is offline   Reply With Quote
Old 03-19-2019, 05:57 PM   #20
Thinks s/he gets paid by the post
 
Join Date: Dec 2014
Location: St. Charles
Posts: 2,000
Quote:
Originally Posted by CRLLS View Post

I wish I had started funding my Roth earlier.
I sometimes have the same thought, but then realize that by the time I had a Roth 401k available, I was in the 28% marginal bracket. And before a recent rule change (2014? 2015?), I could not contribute to a Roth IRA, due to income level.

I DO think now, if you are in the 12% bracket, Roth is the way to go (which is why I make conversions in this bracket). But above that, it is probably a crap shoot. So the earlier comment about diversifying makes the most sense. A little in tax deferred, a little in Roth and a little in after tax. Your options later on are much more wide open.
__________________

__________________
If your not living on the edge, you're taking up too much space.
Never slow down, never grow old!
CardsFan is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
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 11:46 AM
Can I do both Backdoor Roth IRA and Mega Backdoor Roth IRA? growerVon FIRE and Money 8 07-30-2015 01:04 AM
converting IRA to Roth IRA based on new Roth Rules vs. 72t mbmmccoy FIRE and Money 27 09-28-2009 06:27 AM
Questions about limits surrounding ROTH IRA, SEP IRA and ROTH 401k RockSplat FIRE and Money 14 06-08-2009 12:30 PM

» Quick Links

 
All times are GMT -6. The time now is 08:27 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.
×