I may be totally wrong on this as I have not studied Roth the way others have but isn't the goal of paying tax now is to exempt gains moving forward from taxable liability upon withdrawal? If I were young and had access to high-risk, high-reward investments that could go into a Roth it would be perfect.
I think Peter Thiel is the posterboy for this. If I were to pay tax and deposit to a Roth at an advanced age the amount of asset growth is doing to be a small percentage of growth that I would have realized if I deposited to Roth at a much younger age.
In California where I live my marginal tax rate is about 33% (give or take) so on 100K I would deposit 67K and pay 33K in taxes. How long would it take to compensate and reconcile RMD to break-even given my marginal is going to be 33% when RMD kicks in. From my standpoint, if I prepay I prepay and have no choices left later. If I don't prepay I have the option to donate or use some other creative method to avoid taxes if I see fit. I don't know how much I'll have but if I have enough I would like to donate to my university as an option.
Anyway, I also view a Roth as prepaying something (tax) that may be avoided in the future (possibly) but it is my choice. It is really like a non-refundable prepayment arrangement that I would be making with the tax collector.
A Eurail pass is a good metaphor. You're prepaying rail fare with the hope you'll use more fare than you prepaid. The problem is, you're prepaying in the hope you don't get called home for an emergency (can happen with elderly parents, etc.), you don't have an accident (unlikely) or get sick (depends on your health, etc.). These all need to get factored in. If you break even then you wasted money in my opinion. If you leveraged for 125% of fare value then you may have a nice payback. I prefer 200% leverage for prepaying for anything.
I think Peter Thiel is the posterboy for this. If I were to pay tax and deposit to a Roth at an advanced age the amount of asset growth is doing to be a small percentage of growth that I would have realized if I deposited to Roth at a much younger age.
In California where I live my marginal tax rate is about 33% (give or take) so on 100K I would deposit 67K and pay 33K in taxes. How long would it take to compensate and reconcile RMD to break-even given my marginal is going to be 33% when RMD kicks in. From my standpoint, if I prepay I prepay and have no choices left later. If I don't prepay I have the option to donate or use some other creative method to avoid taxes if I see fit. I don't know how much I'll have but if I have enough I would like to donate to my university as an option.
Anyway, I also view a Roth as prepaying something (tax) that may be avoided in the future (possibly) but it is my choice. It is really like a non-refundable prepayment arrangement that I would be making with the tax collector.
A Eurail pass is a good metaphor. You're prepaying rail fare with the hope you'll use more fare than you prepaid. The problem is, you're prepaying in the hope you don't get called home for an emergency (can happen with elderly parents, etc.), you don't have an accident (unlikely) or get sick (depends on your health, etc.). These all need to get factored in. If you break even then you wasted money in my opinion. If you leveraged for 125% of fare value then you may have a nice payback. I prefer 200% leverage for prepaying for anything.
Similar to Route246, but not quite at their admirable level of assets, I have grappled with this idea of being in a relatively high tax bracket in retirement. What I've determined after much analysis is that during a window between various taxable near-term liquidity events (ex. sale of r.e., RSU's, etc.) but before RMD's kick in I could have a handful of years in a reasonably low tax bracket as I would be living off of what you might think of as already taxed funds, or rather a taxable portfolio in which a large chunk of the investments would have little by way of gains (because I would have already been taken to the cleaners on taxes, at the highest rates imaginable, ugh). Anyhow, putting the tiny violins aside, I intend to utilize this window to do some amount of Roth conversions, not that I'm convinced I'll come out ahead in the end, but more as a down the middle approach in the face of many unknowns, including a bet that there is a reasonably high probability the future will involve higher overall tax rates.