Planning Phase: 401k vs Taxable Balances

[NgineER]

Here is another comparing Roth vs tIRA.
He is catering more to the really early retiree, but the logic is the same, but if you spend more money, you are going to pay more taxes, either now or later.

https://www.madfientist.com/traditional-ira-vs-roth-ira/

 

[pb4uski]

You are looking at no tax now, but when you draw SS and have RMDs in the future, you’d pay more in taxes. If you draw from the tax deferred now, you’ll spread the income over time and will be able to manage your taxes better.

Spot on.

I'm doing Roth conversions rather than withdrawals but the current year tax impact is the same.... over the last 5 years the tax on my Roth conversions have averaged 8% because a portion is covered by deductions and exemptions in excess of our other income and taxed at 0%, some at 10% and the remainder at 15% (I only convert to the top of the 15% tax bracket). In fact, Roth conversions are better because you don't need to be 59 1/2 so earlier retirees can tax advantage of them.

If I didn't do withdrawals/conversions I would definitely pay 25% later.... with withdrawals/conversions I may pay 25% for a few years once SS starts and moves us into a higher tax bracket but 15% thereafter.... if I skipped withdrawals/conversions now I would be paying 25% for a very long time.

IMO better to pay 8% now and 15% later than 25% later. Let's say that I can convert 30% at 8% and pay 15% on the remainder... that's a blended rate of 13% and a lot less than paying 25% on everything later... on a $1 million IRA that is a savings of $120k!

ACA subsidies do not make sense in my situation so that is not an issue for me.