Are Roth IRAs overrated?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
logiclife
Posts: 34
Joined: Tue Apr 26, 2011 6:11 pm

Re: Are Roth IRAs overrated?

Post by logiclife » Sat Dec 23, 2017 10:44 pm

mickeyd wrote:
Sat Dec 23, 2017 12:39 pm
There are few places to legally invest your stash and not have to share any part of the growth with the Feds. Roth is my favorite investment and I am sorry that all of my stash is not in my Roth account.
Don't forget HSA account.. Can't beat that.. Don't you think

Finridge
Posts: 499
Joined: Mon May 16, 2011 7:27 pm

Re: Are Roth IRAs overrated?

Post by Finridge » Sat Dec 23, 2017 11:31 pm

livesoft wrote:
Sat Dec 23, 2017 12:24 pm
They are not overrated because one doesn't contribute to them until they have contributed the maximums already to their tax-deferred accounts. They are just another tool in the tool box to use.

If you expect to be in a higher tax bracket in retirement, then you should consider prioritizing contributions to a Roth IRA or Roth 401(k) over tax deferred accounts.

2Birds1Stone
Posts: 450
Joined: Wed Nov 19, 2014 10:33 pm
Location: New York

Re: Are Roth IRAs overrated?

Post by 2Birds1Stone » Sun Dec 24, 2017 4:29 am

The way I look at it is as follows.

Spread tax risk in the future.
I'm phased out of tax deduction for tIRA, so Roth is really my only option.

SGM
Posts: 2746
Joined: Wed Mar 23, 2011 4:46 am

Re: Are Roth IRAs overrated?

Post by SGM » Sun Dec 24, 2017 6:01 am

Advantages of Roth conversions for us:
1. No RMDs at age 70 1/2 and lower ongoing taxes from RMDs
2. Lower ongoing taxable dividends from the year of conversion on forward as taxes were paid out of taxable account
3. Long term growth tax free
4. Better to inherit a Roth than a traditional IRA
5. No problem of where to put unneeded RMDs without increasing ongoing taxation of dividends in taxable account.
6. No loss of purchasing power at the time of conversion
7. Potential for lower IRMAA fees for Medicare in the future.
8. Conversions were done when we had a lower income than would have been the case with RMDs.
9. At some point a widow's taxation would be greater on RMDs than while both of us are alive.
10. We would start taking RMDs the year after our SS income was a lot higher. (One delays until 70 while the other switches from a spousal benefit to own benefit ).

gd
Posts: 1411
Joined: Sun Nov 15, 2009 8:35 am
Location: MA, USA

Re: Are Roth IRAs overrated?

Post by gd » Sun Dec 24, 2017 7:52 am

I use them for tax diversity first. I am not going into retirement with a high income being chopped to nothing, but even considering that, I'm not sure how anyone could follow current events and believe they know what their tax circumstances will be in the mid to far future.

User avatar
FiveK
Posts: 5729
Joined: Sun Mar 16, 2014 2:43 pm

Re: Are Roth IRAs overrated?

Post by FiveK » Sun Dec 24, 2017 9:43 am

Bwlonge wrote:
Sat Dec 23, 2017 12:07 pm
I read something yesterday (https://gocurrycracker.com/roth-sucks/) that I hadn't thought through yet. Namely that the conventional wisdom on whether to do traditional or roth doesn't often clarify the fact that you need to think about what your effective tax rate will be in retirement, not your marginal.
That article is completely wrong on the use of effective tax rate in retirement.

See the wiki here, Traditional versus Roth - Bogleheads, or other references such as Marginal Vs Effective Tax Rates And When To Use Each.

The new tax law may change the result of one's analysis but the math remains the same: compare your marginal saving rate this year to the marginal rate you expect to pay on withdrawals from this year's contribution.

n00b
Posts: 69
Joined: Sun Feb 03, 2013 8:36 pm

Re: Are Roth IRAs overrated?

Post by n00b » Sun Dec 24, 2017 10:38 am

There is another aspect of Traditional IRA vs. Roth IRA that I haven't seen mentioned in this thread.

Because annual contribution limits are the same for each but one is tax deferred while the other is taxed on the way in, maximum contributions effectively store slightly more wealth in a Roth than Traditional IRA since taxes have already been accounted (and paid) for.

This effectively increases your Roth contribution limit by your effective tax rate over Traditional IRA.

User avatar
simplesimon
Posts: 3195
Joined: Mon Feb 25, 2008 8:53 pm
Location: Boston, MA

Re: Are Roth IRAs overrated?

Post by simplesimon » Sun Dec 24, 2017 10:55 am

n00b wrote:
Sun Dec 24, 2017 10:38 am
There is another aspect of Traditional IRA vs. Roth IRA that I haven't seen mentioned in this thread.

Because annual contribution limits are the same for each but one is tax deferred while the other is taxed on the way in, maximum contributions effectively store slightly more wealth in a Roth than Traditional IRA since taxes have already been accounted (and paid) for.

This effectively increases your Roth contribution limit by your effective tax rate over Traditional IRA.
Same argument applies for the Roth 401k vs the traditional 401k.

n00b
Posts: 69
Joined: Sun Feb 03, 2013 8:36 pm

Re: Are Roth IRAs overrated?

Post by n00b » Sun Dec 24, 2017 11:14 am

simplesimon wrote:
Sun Dec 24, 2017 10:55 am
n00b wrote:
Sun Dec 24, 2017 10:38 am
There is another aspect of Traditional IRA vs. Roth IRA that I haven't seen mentioned in this thread.

Because annual contribution limits are the same for each but one is tax deferred while the other is taxed on the way in, maximum contributions effectively store slightly more wealth in a Roth than Traditional IRA since taxes have already been accounted (and paid) for.

This effectively increases your Roth contribution limit by your effective tax rate over Traditional IRA.
Same argument applies for the Roth 401k vs the traditional 401k.
Yep!

technovelist
Posts: 2917
Joined: Wed Dec 30, 2009 9:02 pm
Contact:

Re: Are Roth IRAs overrated?

Post by technovelist » Sun Dec 24, 2017 11:17 am

jhfenton wrote:
Sat Dec 23, 2017 1:25 pm
No. Roth IRAs are always better than taxable accounts or traditional non-deductible IRAs, and that is the alternative for us (and for many folks).
There is a situation in which a Roth IRA is worse than a taxable account.

Namely, if you have losses in the Roth and capital gains in other assets.

Losses in a Roth cannot be set off against capital gains (or ordinary income, but that is a pretty small amount).

I took a bunch of money out of my retirement accounts a few years ago and put the amount remaining after taxes into a taxable account, not a Roth.

As it happens, the value of that account is down substantially, and I can use those unrealized losses to offset capital gains in other accounts as I need to.

If I had put it in a Roth, I would not have that option, which would cost me a lot in additional taxes when selling the other appreciated assets.
In theory, theory and practice are identical. In practice, they often differ.

User avatar
FiveK
Posts: 5729
Joined: Sun Mar 16, 2014 2:43 pm

Re: Are Roth IRAs overrated?

Post by FiveK » Sun Dec 24, 2017 11:33 am

n00b wrote:
Sun Dec 24, 2017 11:14 am
simplesimon wrote:
Sun Dec 24, 2017 10:55 am
n00b wrote:
Sun Dec 24, 2017 10:38 am
There is another aspect of Traditional IRA vs. Roth IRA that I haven't seen mentioned in this thread.

Because annual contribution limits are the same for each but one is tax deferred while the other is taxed on the way in, maximum contributions effectively store slightly more wealth in a Roth than Traditional IRA since taxes have already been accounted (and paid) for.

This effectively increases your Roth contribution limit by your effective tax rate over Traditional IRA.
Same argument applies for the Roth 401k vs the traditional 401k.
Yep!
See Maxing out your retirement accounts and either of the spreadsheets mentioned there to quantify this effect.

552BB
Posts: 154
Joined: Wed Mar 31, 2010 9:15 pm

Re: Are Roth IRAs overrated?

Post by 552BB » Sun Dec 24, 2017 11:39 am

Good morning BH,


Hello Fivek,


FiveK wrote:
Sun Dec 24, 2017 9:43 am
Bwlonge wrote:
Sat Dec 23, 2017 12:07 pm
I read something yesterday (https://gocurrycracker.com/roth-sucks/) that I hadn't thought through yet. Namely that the conventional wisdom on whether to do traditional or roth doesn't often clarify the fact that you need to think about what your effective tax rate will be in retirement, not your marginal.
That article is completely wrong on the use of effective tax rate in retirement.

See the wiki here, Traditional versus Roth - Bogleheads, or other references such as Marginal Vs Effective Tax Rates And When To Use Each.

The new tax law may change the result of one's analysis but the math remains the same: compare your marginal saving rate this year to the marginal rate you expect to pay on withdrawals from this year's contribution.


Some great references.



Thanks.



:sharebeer

User avatar
TomatoTomahto
Posts: 7657
Joined: Mon Apr 11, 2011 1:48 pm

Re: Are Roth IRAs overrated?

Post by TomatoTomahto » Sun Dec 24, 2017 11:42 am

zz4 wrote:
Sat Dec 23, 2017 4:22 pm
Not sure, but I do have $250k in a pre-existing TIRA which I understand complicates things.
Unless you have a suitable 401k that will accept roll-ins, IMO, it is just not worth it. That's the situation I find myself in.

My wife, otoh, emptied her tIRA into her current employer's 401k, and every year does a $6500 backdoor Roth. It is not a large percentage of her retirement assets, but it's easy, it's "free," and the day will come when she appreciates it (or quite possibly, the kids will appreciate it).

We did have one year of "mega" backdoor Roth, so all told, it's a six digit amount in Roth, with tax-free growth and no RMDs. Wheeee!
Zero Net Carbon by 2019.

EddyB
Posts: 557
Joined: Fri May 24, 2013 3:43 pm

Re: Are Roth IRAs overrated?

Post by EddyB » Sun Dec 24, 2017 11:48 am

technovelist wrote:
Sun Dec 24, 2017 11:17 am
jhfenton wrote:
Sat Dec 23, 2017 1:25 pm
No. Roth IRAs are always better than taxable accounts or traditional non-deductible IRAs, and that is the alternative for us (and for many folks).
There is a situation in which a Roth IRA is worse than a taxable account.

Namely, if you have losses in the Roth and capital gains in other assets.

Losses in a Roth cannot be set off against capital gains (or ordinary income, but that is a pretty small amount).

I took a bunch of money out of my retirement accounts a few years ago and put the amount remaining after taxes into a taxable account, not a Roth.

As it happens, the value of that account is down substantially, and I can use those unrealized losses to offset capital gains in other accounts as I need to.

If I had put it in a Roth, I would not have that option, which would cost me a lot in additional taxes when selling the other appreciated assets.
You’re right that there’s an outcome where an ordinary investment account would have been better, true, but it would only be a better plan of action if you expected to lose more than you gain. In that case, I’d suggest skipping investments altogether.

User avatar
triceratop
Moderator
Posts: 5724
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Are Roth IRAs overrated?

Post by triceratop » Sun Dec 24, 2017 11:50 am

TG2 wrote:
Sat Dec 23, 2017 4:18 pm
Plus, I am not eligible for a TIRA so I think I am out of luck.
Isn't everyone eligible for a non-deductible IRA? The limit is for whether the contribution is deductible, not for whether you can make it. You make that contribution and then back-door it in. The complication comes if you have an IRA with deductible contributions already, in which case you are subject to the pro-rata rule. Isn't that it?
No. Only those with "earned income", sometimes called "taxable compensation" are eligible for any IRA contribution, deductible or not deductible. Such people exist: I am in the 15% marginal tax bracket and can contribute $0 to IRAs.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

TG2
Posts: 192
Joined: Sat Nov 25, 2017 6:50 pm

Re: Are Roth IRAs overrated?

Post by TG2 » Sun Dec 24, 2017 12:03 pm

triceratop wrote:
Sun Dec 24, 2017 11:50 am
TG2 wrote:
Sat Dec 23, 2017 4:18 pm
Plus, I am not eligible for a TIRA so I think I am out of luck.
Isn't everyone eligible for a non-deductible IRA? The limit is for whether the contribution is deductible, not for whether you can make it. You make that contribution and then back-door it in. The complication comes if you have an IRA with deductible contributions already, in which case you are subject to the pro-rata rule. Isn't that it?
No. Only those with "earned income", sometimes called "taxable compensation" are eligible for any IRA contribution, deductible or not deductible. Such people exist: I am in the 15% marginal tax bracket and can contribute $0 to IRAs.
I thought that was a given (and also implied in the answer) so didn't clarify it, but yes, you are correct.

User avatar
Epsilon Delta
Posts: 7430
Joined: Thu Apr 28, 2011 7:00 pm

Re: Are Roth IRAs overrated?

Post by Epsilon Delta » Sun Dec 24, 2017 12:06 pm

triceratop wrote:
Sun Dec 24, 2017 11:50 am
TG2 wrote:
Sat Dec 23, 2017 4:18 pm
Plus, I am not eligible for a TIRA so I think I am out of luck.
Isn't everyone eligible for a non-deductible IRA? The limit is for whether the contribution is deductible, not for whether you can make it. You make that contribution and then back-door it in. The complication comes if you have an IRA with deductible contributions already, in which case you are subject to the pro-rata rule. Isn't that it?
No. Only those with "earned income", sometimes called "taxable compensation" are eligible for any IRA contribution, deductible or not deductible. Such people exist: I am in the 15% marginal tax bracket and can contribute $0 to IRAs.
Also no traditional IRA contributions in or after the year you attain age 70.5.

User avatar
ruralavalon
Posts: 14080
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Are Roth IRAs overrated?

Post by ruralavalon » Sun Dec 24, 2017 12:28 pm

Bwlonge wrote:
Sat Dec 23, 2017 12:07 pm
I read something yesterday (https://gocurrycracker.com/roth-sucks/) that I hadn't thought through yet. Namely that the conventional wisdom on whether to do traditional or roth doesn't often clarify the fact that you need to think about what your effective tax rate will be in retirement, not your marginal.

So, if I went Roth next year in the 12% bracket, I would be taxed 12% on $6160. However, in retirement, all else being equal, to be taxed at 12%, I would need to withdraw $67k/year. If I planned to take out 40k/year instead, I would be taxed 8%. So the decision to go Roth is more than just about "whether or not you'll be taxed more in the future," its "whether or not your effective tax rate in retirement will be higher than your marginal tax rate now, and thus, depends on how much you plan to withdraw in the future."

Furthermore, a taxable account can behave like a roth IRA if gains and losses are harvested, plus you keep 100% liquidity.
Overrated? It's a very individual thing.

Traditional is likely better than Roth for most people.

But a Roth IRA is a very good idea for for (1) an investor who can make maximum employee contributions to their work-based account and wants or needs more tax-advantaged investing, (2) an investor who earns too much to be able to deduct for contributions to a traditional IRA, (3) an investor who will have a substantial pension and so have large Required Minimum Distributions, and (4) probably other personal circumstances.

But most people don't fit those categories, so a Roth IRA is sometimes over promoted (overrated) for most people.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Ron Ronnerson
Posts: 985
Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: Are Roth IRAs overrated?

Post by Ron Ronnerson » Sun Dec 24, 2017 12:39 pm

Personal circumstances and the unknown future tax rates are factors in the answer to your question. My best guess is that they are underrated.

technovelist
Posts: 2917
Joined: Wed Dec 30, 2009 9:02 pm
Contact:

Re: Are Roth IRAs overrated?

Post by technovelist » Sun Dec 24, 2017 12:39 pm

EddyB wrote:
Sun Dec 24, 2017 11:48 am
technovelist wrote:
Sun Dec 24, 2017 11:17 am
jhfenton wrote:
Sat Dec 23, 2017 1:25 pm
No. Roth IRAs are always better than taxable accounts or traditional non-deductible IRAs, and that is the alternative for us (and for many folks).
There is a situation in which a Roth IRA is worse than a taxable account.

Namely, if you have losses in the Roth and capital gains in other assets.

Losses in a Roth cannot be set off against capital gains (or ordinary income, but that is a pretty small amount).

I took a bunch of money out of my retirement accounts a few years ago and put the amount remaining after taxes into a taxable account, not a Roth.

As it happens, the value of that account is down substantially, and I can use those unrealized losses to offset capital gains in other accounts as I need to.

If I had put it in a Roth, I would not have that option, which would cost me a lot in additional taxes when selling the other appreciated assets.
You’re right that there’s an outcome where an ordinary investment account would have been better, true, but it would only be a better plan of action if you expected to lose more than you gain. In that case, I’d suggest skipping investments altogether.
I didn't say I expected to lose more than I gained. Of course I didn't expect that to happen or I wouldn't have made those investments. But that's what actually did happen.

And in that particular case, the taxable account is preferable to a Roth account.

So it is not true that Roth IRAs are always better than taxable accounts, which was the original claim.
In theory, theory and practice are identical. In practice, they often differ.

ThrustVectoring
Posts: 534
Joined: Wed Jul 12, 2017 2:51 pm

Re: Are Roth IRAs overrated?

Post by ThrustVectoring » Sun Dec 24, 2017 12:45 pm

Roth accounts are primarily useful through conversions - it's a tax-exempt-on-withdrawal way to cease deferring taxes on income in the year that you want to realize it. Not being subject to RMDs is another huge bonus.
Current portfolio: 60% VTI / 40% VXUS

User avatar
jhfenton
Posts: 3347
Joined: Sat Feb 07, 2015 11:17 am
Location: Ohio

Re: Are Roth IRAs overrated?

Post by jhfenton » Sun Dec 24, 2017 12:51 pm

technovelist wrote:
Sun Dec 24, 2017 11:17 am
jhfenton wrote:
Sat Dec 23, 2017 1:25 pm
No. Roth IRAs are always better than taxable accounts or traditional non-deductible IRAs, and that is the alternative for us (and for many folks).
There is a situation in which a Roth IRA is worse than a taxable account.

Namely, if you have losses in the Roth and capital gains in other assets.

Losses in a Roth cannot be set off against capital gains (or ordinary income, but that is a pretty small amount).

I took a bunch of money out of my retirement accounts a few years ago and put the amount remaining after taxes into a taxable account, not a Roth.

As it happens, the value of that account is down substantially, and I can use those unrealized losses to offset capital gains in other accounts as I need to.

If I had put it in a Roth, I would not have that option, which would cost me a lot in additional taxes when selling the other appreciated assets.
You are correct. :beer It is possible, after the fact, for a Roth to have been worse than a taxable account if you have losses.

I was approaching it from an ex ante perspective. Assuming that you're not expecting to lose money, you should always prefer a Roth (if eligible) over a taxable account.

User avatar
ruralavalon
Posts: 14080
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Are Roth IRAs overrated?

Post by ruralavalon » Sun Dec 24, 2017 1:38 pm

Deleted.
Last edited by ruralavalon on Sun Dec 24, 2017 3:10 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

randomguy
Posts: 6502
Joined: Wed Sep 17, 2014 9:00 am

Re: Are Roth IRAs overrated?

Post by randomguy » Sun Dec 24, 2017 3:04 pm

Bwlonge wrote:
Sat Dec 23, 2017 12:07 pm
I read something yesterday (https://gocurrycracker.com/roth-sucks/) that I hadn't thought through yet. Namely that the conventional wisdom on whether to do traditional or roth doesn't often clarify the fact that you need to think about what your effective tax rate will be in retirement, not your marginal.

So, if I went Roth next year in the 12% bracket, I would be taxed 12% on $6160. However, in retirement, all else being equal, to be taxed at 12%, I would need to withdraw $67k/year. If I planned to take out 40k/year instead, I would be taxed 8%. So the decision to go Roth is more than just about "whether or not you'll be taxed more in the future," its "whether or not your effective tax rate in retirement will be higher than your marginal tax rate now, and thus, depends on how much you plan to withdraw in the future."

Furthermore, a taxable account can behave like a roth IRA if gains and losses are harvested, plus you keep 100% liquidity.
It is far more complicated than this in that you don't have to pick ROTH or traditional. You can do both. Read the discussions about if it should be effective vs marginal versus marginal versus marginal to understand this issue. This blog post is a very superficial look at the issues involved.

Roth doesn't work out for his examples because he picke ones where they don't make any sense. It would be easy to come up with example where it does. Say someone making 15% now but 39% in retirement. Or a person who can use the ROTH income so that they get a 12k ACA tax credit versus 0 from a TIRA distributions. You need to think about your situation and decide what makes sense. I do traditional since I don't expect to be paying 45%+ (don't forgot about state taxes today) when I retire. And if I happen to end up there, I think that is a problem I can live with.

bsteiner
Posts: 3534
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Are Roth IRAs overrated?

Post by bsteiner » Sun Dec 24, 2017 3:18 pm

Roth IRAs aren't overrated. They're underrated. But many people in high tax brackets should wait until they retire before considering Roth conversions.

DrGoogle2017
Posts: 1322
Joined: Mon Aug 14, 2017 12:31 pm

Re: Are Roth IRAs overrated?

Post by DrGoogle2017 » Sun Dec 24, 2017 3:59 pm

randomguy wrote:
Sun Dec 24, 2017 3:04 pm
Bwlonge wrote:
Sat Dec 23, 2017 12:07 pm
I read something yesterday (https://gocurrycracker.com/roth-sucks/) that I hadn't thought through yet. Namely that the conventional wisdom on whether to do traditional or roth doesn't often clarify the fact that you need to think about what your effective tax rate will be in retirement, not your marginal.

So, if I went Roth next year in the 12% bracket, I would be taxed 12% on $6160. However, in retirement, all else being equal, to be taxed at 12%, I would need to withdraw $67k/year. If I planned to take out 40k/year instead, I would be taxed 8%. So the decision to go Roth is more than just about "whether or not you'll be taxed more in the future," its "whether or not your effective tax rate in retirement will be higher than your marginal tax rate now, and thus, depends on how much you plan to withdraw in the future."

Furthermore, a taxable account can behave like a roth IRA if gains and losses are harvested, plus you keep 100% liquidity.
It is far more complicated than this in that you don't have to pick ROTH or traditional. You can do both. Read the discussions about if it should be effective vs marginal versus marginal versus marginal to understand this issue. This blog post is a very superficial look at the issues involved.

Roth doesn't work out for his examples because he picke ones where they don't make any sense. It would be easy to come up with example where it does. Say someone making 15% now but 39% in retirement. Or a person who can use the ROTH income so that they get a 12k ACA tax credit versus 0 from a TIRA distributions. You need to think about your situation and decide what makes sense. I do traditional since I don't expect to be paying 45%+ (don't forgot about state taxes today) when I retire. And if I happen to end up there, I think that is a problem I can live with.
I think he just wants a lot of BHs to visit his blog. It serves a purpose. Nobody would click on the link had he posted otherwise.

ksc
Posts: 30
Joined: Thu Jul 05, 2007 7:31 pm

Re: Are Roth IRAs overrated?

Post by ksc » Sun Dec 24, 2017 4:07 pm

nisiprius wrote:
Sat Dec 23, 2017 3:02 pm

I have to say this, too: I am now having to deal with RMD's and decided I'd better pay twenty bucks for a 400-page book

Image

on withdrawing money from retirement plans. The complexity of it all is considerable. I pity anybody who inherits a 401(k) or a traditional IRA. If I were a young worker and I had a choice between a traditional and Roth 401(k) I might just pick the Roth on the basis of "can't tell which is better but it's obvious which will be less of a headache."
The amazon reviews on book do not seem overly positive.

technovelist
Posts: 2917
Joined: Wed Dec 30, 2009 9:02 pm
Contact:

Re: Are Roth IRAs overrated?

Post by technovelist » Sun Dec 24, 2017 7:07 pm

ksc wrote:
Sun Dec 24, 2017 4:07 pm
nisiprius wrote:
Sat Dec 23, 2017 3:02 pm

I have to say this, too: I am now having to deal with RMD's and decided I'd better pay twenty bucks for a 400-page book

Image

on withdrawing money from retirement plans. The complexity of it all is considerable. I pity anybody who inherits a 401(k) or a traditional IRA. If I were a young worker and I had a choice between a traditional and Roth 401(k) I might just pick the Roth on the basis of "can't tell which is better but it's obvious which will be less of a headache."
The amazon reviews on book do not seem overly positive.
I ran into that same issue of how to withdraw money from assets in retirement (although I'm not quite to the RMD stage). I couldn't find anything that would deal with those complexities, including taxation and life expectancy.

Fortunately, I'm a software developer, so I wrote my own program.
In theory, theory and practice are identical. In practice, they often differ.

Investnewbie01
Posts: 40
Joined: Tue Jun 06, 2017 12:33 pm

Re: Are Roth IRAs overrated?

Post by Investnewbie01 » Sat Jun 23, 2018 4:06 pm

Yes they are!
It is hoped that during your working life you will advance to the highest tax bracket, taking advantage of tax breaks such as mortgage relief, however long they last?
However hopefully you have enjoyed life, as not a given you will live past 80, so when retired your tax bracket will go much lower. Of course members of the “ flat earth society “ will say tax hikes in the future, but highly unlikely! Of course in the current climate kids will start practicing crouching under school desks, ( as they did in the 80,s) for protection re nuclear attack, but tIRA is the way to go!

AlwaysWannaLearn
Posts: 230
Joined: Mon May 28, 2018 8:37 pm

Re: Are Roth IRAs overrated?

Post by AlwaysWannaLearn » Sat Jun 23, 2018 6:13 pm

.....
Last edited by AlwaysWannaLearn on Wed Jul 18, 2018 11:06 pm, edited 1 time in total.

togb
Posts: 138
Joined: Mon Oct 23, 2017 8:36 pm

Re: Are Roth IRAs overrated?

Post by togb » Sat Jun 23, 2018 6:38 pm

Not overrated.
The only thing that I don't like about my Roth is that I missed some opportunities to do conversions when I was on sabbatical and was in a low tax rate.

For me, the Roth is the safety net for lots of "what if's". I don't have a pension, but will be taxed on SS and tIRA RMDs. The tax rate will be pretty much as it is now-- which is more than I'd like but I certainly would not want to pay even more. So the Roth is my "go to" for unexpectedly needing a new car, or a trip to Tahiti, or maybe just new tires. I'm hoping to arrange my SS and RMD to cover basic living expenses-- not spartan, all the living expenses including Dish and internet and eating out with friends. But when something (good or bad) unexpectedly comes up, I'm going to tap the Roth to take care of things without messing with my tax liability.

I am a fan of Roths, and would really like to have a healthy balance in there. The RMD will be whatever the government says it is, based on whatever the balances are the prior 12/31. But the Roth gives me an element of control, some nice wiggle room without messing up the tax picture.

schrute
Posts: 243
Joined: Wed Nov 05, 2014 2:27 pm

Re: Are Roth IRAs overrated?

Post by schrute » Sat Jun 23, 2018 6:45 pm

Love the idea of tax-free growth, particularly since I invested in a stock that greatly appreciated. If you can't get a tax deduction for a traditional IRA, a Roth IRA is a no-brainer. Any after tax money that can go into a retirement account, again, Roth IRA is a no brainer.

Dottie57
Posts: 4655
Joined: Thu May 19, 2016 5:43 pm

Re: Are Roth IRAs overrated?

Post by Dottie57 » Sat Jun 23, 2018 6:53 pm

zz4 wrote:
Sat Dec 23, 2017 2:05 pm
mickeyd wrote:
Sat Dec 23, 2017 1:49 pm
zz4 wrote:
Sat Dec 23, 2017 1:32 pm
Am I right in thinking that starting a Roth would not benefit me at this point as we're at the top or near the top of the tax brackets?
Why do you think that?
I'd be putting $5500 away in a roth after paying 39% tax on it. Then withdrawing it at a much lower rate in retirement was my thought. Did I miss something?

You get to have tax free withdrawls of both principle (taxes already paid) and earnings. I think it is a good vehicle.
I have 401k, trad IRA, Roth IRA and taxable. All have their place.

02nz
Posts: 528
Joined: Wed Feb 21, 2018 3:17 pm

Re: Are Roth IRAs overrated?

Post by 02nz » Sat Jun 23, 2018 7:04 pm

Roth IRAs are a wonderful tool, but they are perhaps in some sense "overrated" by many in the media, given that for many people, who are likely to face a lower tax rate in retirement than in their working years, it makes sense to prioritize traditional 401k/IRA contributions ahead of the Roth. In my own case, I also learned about the advantages of the Roth IRA a bit too late. In my early working years, when I could've benefited most from a Roth IRA (because I was at lower tax brackets) I didn't really know about it, in part because it was relatively new then.

lostdog
Posts: 1246
Joined: Thu Feb 04, 2016 2:15 pm

Re: Are Roth IRAs overrated?

Post by lostdog » Sat Jun 23, 2018 7:29 pm

DrGoogle2017 wrote:
Sun Dec 24, 2017 3:59 pm
randomguy wrote:
Sun Dec 24, 2017 3:04 pm
Bwlonge wrote:
Sat Dec 23, 2017 12:07 pm
I read something yesterday (https://gocurrycracker.com/roth-sucks/) that I hadn't thought through yet. Namely that the conventional wisdom on whether to do traditional or roth doesn't often clarify the fact that you need to think about what your effective tax rate will be in retirement, not your marginal.

So, if I went Roth next year in the 12% bracket, I would be taxed 12% on $6160. However, in retirement, all else being equal, to be taxed at 12%, I would need to withdraw $67k/year. If I planned to take out 40k/year instead, I would be taxed 8%. So the decision to go Roth is more than just about "whether or not you'll be taxed more in the future," its "whether or not your effective tax rate in retirement will be higher than your marginal tax rate now, and thus, depends on how much you plan to withdraw in the future."

Furthermore, a taxable account can behave like a roth IRA if gains and losses are harvested, plus you keep 100% liquidity.
It is far more complicated than this in that you don't have to pick ROTH or traditional. You can do both. Read the discussions about if it should be effective vs marginal versus marginal versus marginal to understand this issue. This blog post is a very superficial look at the issues involved.

Roth doesn't work out for his examples because he picke ones where they don't make any sense. It would be easy to come up with example where it does. Say someone making 15% now but 39% in retirement. Or a person who can use the ROTH income so that they get a 12k ACA tax credit versus 0 from a TIRA distributions. You need to think about your situation and decide what makes sense. I do traditional since I don't expect to be paying 45%+ (don't forgot about state taxes today) when I retire. And if I happen to end up there, I think that is a problem I can live with.
I think he just wants a lot of BHs to visit his blog. It serves a purpose. Nobody would click on the link had he posted otherwise.
Agree. Alot of the FI bloggers will use click bait titles to generate revenue for their blog. Just follow the boglehead philosophy. Be careful of those blogs.

craimund
Posts: 69
Joined: Thu Feb 15, 2018 3:39 pm
Location: Virginia

Re: Are Roth IRAs overrated?

Post by craimund » Sun Jun 24, 2018 4:56 am

Investnewbie01 wrote:
Sat Jun 23, 2018 4:06 pm
Yes they are!
It is hoped that during your working life you will advance to the highest tax bracket, taking advantage of tax breaks such as mortgage relief, however long they last?
However hopefully you have enjoyed life, as not a given you will live past 80, so when retired your tax bracket will go much lower. Of course members of the “ flat earth society “ will say tax hikes in the future, but highly unlikely! Of course in the current climate kids will start practicing crouching under school desks, ( as they did in the 80,s) for protection re nuclear attack, but tIRA is the way to go!
I went to school in the 70s and early 80s and we never crouched under a desk. That was more of an early cold war 50s thing.

Agree that ROTH is less desirable than pre tax for high income earners. My strategy during my high earning years was to max out pre-tax accounts. My income is lower now as I near retirement and I have numerous tax credits so I am now making ROTH contributions.
"When you ain't got nothing, you got nothing to lose"-Bob Dylan 1965. "When you think that you've lost everything, you find out you can always lose a little more"-Dylan 1997

Investnewbie01
Posts: 40
Joined: Tue Jun 06, 2017 12:33 pm

Re: Are Roth IRAs overrated?

Post by Investnewbie01 » Thu Jun 28, 2018 7:12 pm

Thxs for That. My wife “assumed the position” under the desk in the 80’s in Illinois, mind you that is the Mid West, although as celebrations deservedly due on July 4th isn’t it about time it was called East? Arizona is really the Midwest, last time I looked at a non flat earth map! Lol

megabad
Posts: 663
Joined: Fri Jun 01, 2018 4:00 pm

Re: Are Roth IRAs overrated?

Post by megabad » Fri Jun 29, 2018 4:50 pm

Bwlonge wrote:
Sat Dec 23, 2017 12:07 pm
I read something yesterday (https://gocurrycracker.com/roth-sucks/) that I hadn't thought through yet. Namely that the conventional wisdom on whether to do traditional or roth doesn't often clarify the fact that you need to think about what your effective tax rate will be in retirement, not your marginal.

So, if I went Roth next year in the 12% bracket, I would be taxed 12% on $6160. However, in retirement, all else being equal, to be taxed at 12%, I would need to withdraw $67k/year. If I planned to take out 40k/year instead, I would be taxed 8%. So the decision to go Roth is more than just about "whether or not you'll be taxed more in the future," its "whether or not your effective tax rate in retirement will be higher than your marginal tax rate now, and thus, depends on how much you plan to withdraw in the future."

Furthermore, a taxable account can behave like a roth IRA if gains and losses are harvested, plus you keep 100% liquidity.
I use alternative math that does not agree with yours. In all seriousness, I think Roth IRAs are neither underrated nor overrated. Though I would strongly prefer a Roth IRA over a taxable account.
FiveK wrote:
Sun Dec 24, 2017 9:43 am
That article is completely wrong on the use of effective tax rate in retirement.

See the wiki here, Traditional versus Roth - Bogleheads, or other references such as Marginal Vs Effective Tax Rates And When To Use Each.

The new tax law may change the result of one's analysis but the math remains the same: compare your marginal saving rate this year to the marginal rate you expect to pay on withdrawals from this year's contribution.
I strongly agree with FiveK. I disagree with the math in your cited article and would recommend you peruse the links that FiveK posted.

H-Town
Posts: 1274
Joined: Sun Feb 26, 2017 2:08 pm

Re: Are Roth IRAs overrated?

Post by H-Town » Fri Jun 29, 2018 5:06 pm

Didn't see this thread before... But there are some people who think Roth IRA overrated? Here I wish I have 100k Roth IRA space every year. 5.5k is too small.

Post Reply