High tax bracket - Go 100% Roth in tax advantaged?

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ALostCause2
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High tax bracket - Go 100% Roth in tax advantaged?

Post by ALostCause2 » Wed Aug 15, 2018 8:25 pm

Thanks in advance. Thank you for reviewing. Yes, I know I have been blessed, but it certainly has taken a lot of hard work including those around me. I spoke to my CPA (fee only fiduciary), but wanted to run the idea passed the greater groupthink here.

Emergency funds: ~12 months
Debt: None
Tax Filing Status: Single, no dependents
Age: 33

Gross income: 450k /yr
Tax Fed: 35%
State/Local: 9.85%

Current Assets:
- Taxable: 400 k
- 403b: 120 k (pretax)
- 457(non-gov): 30 k (pretax)
- IRA : 70 k (ROTH)

Investment Rate:
- Taxable: 195.0 k /yr
- 403b: 23.8 k /yr (pretax, includes match)
- 457(non-gov): 18.5 k /yr (pretax, no match)
- IRA: 5.5 k /yr (ROTH)

Expected Pension @ 65: $150k /yr
Expected Social Security: Maximum (whatever that happens to be in 30+ years)


My CPA pointed out that RMD's when I hit 70 would be so high that I'd end up in the same or higher tax bracket. While we don't know if there'll be a new tax plan by 2026, the new tax brackets (2018) are set to expire that year and revert to the old (2017) system, which would bump me up to the 39.6% Federal rate (from 35%).

Because of that, if I chose to do so, he would support switching over to Roth for all tax advantaged space. (Obviously, my taxable investment rate would go down switching from Pretax to Roth) Though I do admit I don't know for sure what will happen in 30 years, I'm thinking I will probably accumulate enough in Taxable brokerage that I will never need to dip into the tax advantaged accounts.

What are your thoughts? Should I continue following my setup of the classic Tax Deferred as much as possible (403b/457) with Roth only in IRA? Should I switch to Roth everything? What am I missing? What should I think about/consider?

Again, thank you for your thoughts. Completely understand that I have been so fortunate to have been given such financial opportunity. I only have the people around me to thank, and of course, you wonderful folks at Bogleheads.

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cheese_breath
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by cheese_breath » Wed Aug 15, 2018 8:33 pm

Who will inherit your investments when you die? Roth inheritances will be tax free to your beneficiaries. Deferred investments will be taxable as normal income to them and might push them into higher tax brackets.
The surest way to know the future is when it becomes the past.

jdilla1107
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by jdilla1107 » Wed Aug 15, 2018 8:43 pm

ALostCause2 wrote:
Wed Aug 15, 2018 8:25 pm
My CPA pointed out that RMD's when I hit 70 would be so high that I'd end up in the same or higher tax bracket. While we don't know if there'll be a new tax plan by 2026, the new tax brackets (2018) are set to expire that year and revert to the old (2017) system, which would bump me up to the 39.6% Federal rate (from 35%).
How long do you plan to work for? Your CPA seems to assume you would be working until a normal retirement age. With that income, I would plan to retire at around age 50 and have 10-15 years to convert into roth. That's what I'll be doing. If I didn't chose traditional, then I wouldn't have regular income to fill those tax years (ie: age 50-65) with.

This idea is referred to as tax arbitrage. Defer money from a high tax bracket and pay taxes later at a low bracket. If you work until 65 though, then you won't have time to do this.

So, it all depends on what your income looks like before RMDs.

JW-Retired
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by JW-Retired » Wed Aug 15, 2018 11:19 pm

ALostCause2,
I don't see all that much difference between paying 35% +10% Fed & state taxes and 39.6%+10%, and even if there was IMO you are jumping the gun. You know for sure your tax rate is pretty darn high now so I would keep deferring like you have been. Who knows where you and the tax rates might be in 10 or 20 or 30 years? Your expectations probably have a pretty good chance of not turning out as you are forecasting.........things happen.

If the accountants forecast is still looking good when you are half way to retiring and have a hefty deferred nest egg, then perhaps switch over to Roth then.
JW
Retired at Last

Cop51
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by Cop51 » Thu Aug 16, 2018 1:49 am

I didn’t run numbers or projections but withdrawing at 59.5 gives your 11 years to withdraw prior to RMD kicking in. With that income I would also be looking to retire early. Early as the very latest 59.5 or 55 if you retire from your employer which holds your 401k so you don’t pay any penalty. He’s looking out for your best interest and the key for you is don’t retire in a 10% income tax state!

Ragnoth
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by Ragnoth » Thu Aug 16, 2018 2:02 am

On a certain level, the “right” answer requires you to speculate about tax rates in the future.

Times like this is makes sense to have “tax diversification”. Hedge your bets and set yourself up with the goal of having a healthy mix of both Roth and Traditional money at retirement.

Many people do this through a combination of 401k + Backdoor Roth IRA simply to maximize their tax advantaged space, but it’s somethig you can actively aim for if given the right tools (e.g., access to Roth 401k or mega backdoor).

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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by TomatoTomahto » Thu Aug 16, 2018 5:07 am

We are in a similar boat, and so is our son (just starting out). Neither of us has access to a mega backdoor Roth.

It’s a close call, almost 50/50, but what swings me to the traditional route is the thought that, in 10 or 20 years, the country might have a consumption tax.

We and he do a backdoor Roth for the max, and also max out traditional 401k. Rest goes into taxable.
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blueman457
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by blueman457 » Thu Aug 16, 2018 6:29 am

For your non-govt 457, make sure the distribution options are ok. I had one where you had to take a lump sum upon termination which was not going to be favorable with regards to taxes.

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cas
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by cas » Thu Aug 16, 2018 7:54 am

ALostCause2 wrote:
Wed Aug 15, 2018 8:25 pm
My CPA pointed out that RMD's when I hit 70 would be so high that I'd end up in the same or higher tax bracket.
You may be interested in a recent Vanguard research paper that points out that comparing current and retirement marginal tax rates is, in some situations, not giving the whole picture with respect to Roth conversions. (Yes, the paper is specifically addressing Roth conversions rather than choosing between traditional/Roth contributions, but the same factors would seem to apply.) With your rapidly increasing taxable account and relatively young age, you would likely fall into at least one of the situations that the Vanguard research paper is addressing.

"A 'BETR' Approach to Roth Conversions" (2018) https://personal.vanguard.com/pdf/ISGBETR.pdf
Investors typically decide whether to convert to a Roth IRA from a traditional IRA by comparing their
current and expected future marginal tax rates. The rule of thumb has been that higher future tax rates
make a conversion more desirable, while lower ones make it less so. (Given that future tax rates are
uncertain for many reasons, many investors may want to diversify this tax risk through partial conversions.)
We introduce a break-even tax rate (BETR) that yields a more accurate view of what future tax rate would
make an investor indifferent to a conversion.
Specifically, relative to you,
This[BETR] metric accounts for the fact that using funds from a taxable account to pay the conversion taxes [pay for contributing to Roth vs traditional, in your case] avoids some tax drag over the years (preferably decades) between conversion and Roth withdrawal. It makes conversions somewhat more attractive.
(quote from a summary of the paper given by the OP of the Boglehead's thread I mention below.)


No definite answers, but probably some food for thought. One big thing that would seem to apply to you, with your relatively young age, that the paper doesn't directly address, is "What if life and/or public policy deviate drastically from my hopes and plans over the next 30 years?" Still, I think the idea of the BETR does give some tools for thinking about what magnitude of negative financial hit could be absorbed before switching to Roth now ceased making sense.)

There is also a Boglehead's thread where this paper is (sort of) discussed: "Vanguard Paper on Roth Conversion Analysis" viewtopic.php?f=10&t=254680&start=50

(I say "(sort of) discussed" because many people appears to base their comments on thoughts that various key words triggered, rather than actually reading the paper and addressing ideas in the paper. You may or may not find the discussion useful.)
Last edited by cas on Thu Aug 16, 2018 8:08 am, edited 1 time in total.

aristotelian
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by aristotelian » Thu Aug 16, 2018 7:58 am

Retire early.

The Wizard
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by The Wizard » Thu Aug 16, 2018 8:53 am

$120k per year going into your 403(b) pre-tax is double the max allowable, so you might want to check that...
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cheese_breath
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by cheese_breath » Thu Aug 16, 2018 9:16 am

The Wizard wrote:
Thu Aug 16, 2018 8:53 am
$120k per year going into your 403(b) pre-tax is double the max allowable, so you might want to check that...
The $120K was listed under current assets, not yearly contributions.
The surest way to know the future is when it becomes the past.

randomguy
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by randomguy » Thu Aug 16, 2018 9:26 am

ALostCause2 wrote:
Wed Aug 15, 2018 8:25 pm
Thanks in advance. Thank you for reviewing. Yes, I know I have been blessed, but it certainly has taken a lot of hard work including those around me. I spoke to my CPA (fee only fiduciary), but wanted to run the idea passed the greater groupthink here.

Emergency funds: ~12 months
Debt: None
Tax Filing Status: Single, no dependents
Age: 33

Gross income: 450k /yr
Tax Fed: 35%
State/Local: 9.85%

Current Assets:
- Taxable: 400 k
- 403b: 120 k (pretax)
- 457(non-gov): 30 k (pretax)
- IRA : 70 k (ROTH)

Investment Rate:
- Taxable: 195.0 k /yr
- 403b: 23.8 k /yr (pretax, includes match)
- 457(non-gov): 18.5 k /yr (pretax, no match)
- IRA: 5.5 k /yr (ROTH)

Expected Pension @ 65: $150k /yr
Expected Social Security: Maximum (whatever that happens to be in 30+ years)


My CPA pointed out that RMD's when I hit 70 would be so high that I'd end up in the same or higher tax bracket. While we don't know if there'll be a new tax plan by 2026, the new tax brackets (2018) are set to expire that year and revert to the old (2017) system, which would bump me up to the 39.6% Federal rate (from 35%).


You are not going to be in a higher tax bracket unless things go really well. If you work til 65, make 8% (pretty high considering you are likely to stick stocks in taxable, bonds in tax deferred and with how much taxable savings you will have no matter what) with 2% inflation, you end up with about 7.5 million nominal and 4 million real. That is much lower income but about the same marginal rate . But by paying taxes now, you are paying everything at 35% instead of a blended 32/35% rate.

You also have to think about personal situations. What are your odds of getting married, moving to a lower tax state, or bailing out before 65? The benefit to the ROTH is the ability to reduce tax drag a bit. These are all hard things to predict.

Personally I would stay the course for another 10 or so years. and then reconsider. Hedging against not working til 65 seems like a better choice than trying to maximize retirement spending (which would be something like 2x what you are currently spending).

JBTX
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by JBTX » Thu Aug 16, 2018 9:29 am

I'm a big fan of Roth and think it makes sense to have both traditional and Roth. However if I were in a 45% marginal rate I'd go traditional. I just could not pass up a 45% up front reduction in taxes. My bet would be somewhere down the line my tax rate will decrease and I could do Roth conversions.

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Artsdoctor
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by Artsdoctor » Thu Aug 16, 2018 9:44 am

Lost,

Interesting that your CPA would actually point you here.

Vanguard recently had a white paper which you might find helpful:

https://personal.vanguard.com/pdf/ISGBETR.pdf

Roths may not be right for you. When you read the paper, you can think about backdoor Roths although I'm skeptical you'd still come out ahead.

Make sure you understand what a 457 non-governmental plan is; they are very different than a governmental 457 plan. I know that the tax savings are enticing but you will have no voice in what your employer chooses for investment options and you won't be able to "walk with your feet" (meaning, you can't just easily transfer the account elsewhere like you can a 401k when you leave). We jettisoned our 457s many years ago when we realized their shortcomings.

It is true that your tax-deferred accounts can become quite large when you start taking withdrawals so some people actually try to "slow down" the growth by keeping mostly bonds in the tax-deferred account and placing equities in the taxable accounts (or Roths, or HSAs). However, given your age, you're probably going to be light on bonds at this stage but it's something to remember later.

Trying to predict tax rates in retirement is impossible. And I would not make decisions now based on any sunset provisions in the current tax law. While you can sometimes make decisions based on tax law from one year to the next, looking several years in the future and acting on hypotheticals would be problematic.

Nate79
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by Nate79 » Thu Aug 16, 2018 9:53 am

The assets you have in your tax deferred accounts is quite low to be worrying about RMDs. And you are quite young to be so confident about a pension income and SS 30+ years in the future. Your tax deferred accounts have a LONG LONG LONG way to go before you need to worry about RMDs (you can project it out, using real growth rates). As others pointed out you may also want early retirement, can do Roth conversions, etc. Maybe 10 years from now your accounts will be large enough that you want to switch to Roth but you are not near close enough for that to matter now.

Katietsu
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by Katietsu » Thu Aug 16, 2018 10:36 am

Often when I read BH posts from “younger” people, my middle aged mind brings up the old adage..”Man plans, and God laughs.”

Personally, I would stay with traditional for the 403b for now. RMD’s and pensions are far enough away to have a significant chance of change. Also, I would be sure I understood all the details on the 457. For instance, I had a friend who had the same retirement projections as you with the same convictions. However, life at 50 looked different than life at 30 and he left for a situation that better met his needs. He found out that since he was leaving before the institution’s retirement age, 100% of the 457 funds had to be withdrawn and taxed at once.

However, you should be fine no matter what choice you make.

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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by Compound » Thu Aug 16, 2018 4:32 pm

blueman457 wrote:
Thu Aug 16, 2018 6:29 am
For your non-govt 457, make sure the distribution options are ok. I had one where you had to take a lump sum upon termination which was not going to be favorable with regards to taxes.

Blue Man
Agreed. OP could be in for a big surprise if they don’t know their non-government 457 plan rules well.

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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by Darth Xanadu » Thu Aug 16, 2018 4:46 pm

JBTX wrote:
Thu Aug 16, 2018 9:29 am
I'm a big fan of Roth and think it makes sense to have both traditional and Roth. However if I were in a 45% marginal rate I'd go traditional. I just could not pass up a 45% up front reduction in taxes. My bet would be somewhere down the line my tax rate will decrease and I could do Roth conversions.
This reflects my thinking exactly on all points.
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by WanderingDoc » Thu Aug 16, 2018 4:48 pm

aristotelian wrote:
Thu Aug 16, 2018 7:58 am
Retire early.
That's not for everyone. Warren Buffett didn't. Marc Cuban didn't. Grant Cardone didn't. Ben Franklin didn't. Richard Feynman didn't. The list goes on. Actually, anyone I admire or respect across the board - did not retire early. Early retirement forums are filled with doom and gloom folks, penny pinchers, global warming worriers, and those who generally like to hold a moral authority over others. And yes, I am generalizing.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

JBTX
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by JBTX » Thu Aug 16, 2018 6:31 pm

WanderingDoc wrote:
Thu Aug 16, 2018 4:48 pm
aristotelian wrote:
Thu Aug 16, 2018 7:58 am
Retire early.
That's not for everyone. Warren Buffett didn't. Marc Cuban didn't. Grant Cardone didn't. Ben Franklin didn't. Richard Feynman didn't. The list goes on. Actually, anyone I admire or respect across the board - did not retire early. Early retirement forums are filled with doom and gloom folks, penny pinchers, global warming worriers, and those who generally like to hold a moral authority over others. And yes, I am generalizing.
John Bogle didn't. At least not fully.

retiredjg
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by retiredjg » Thu Aug 16, 2018 6:37 pm

I would stop using the non-governmental 457b and use traditional 401k. You need some tax-deferral. You probably don't need two accounts worth of tax-deferral though, especially with a pension, and non-govenrmental 457bs have issues.

I might use a combination of traditional and Roth 401k. I wold not use all Roth.

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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by Starfish » Thu Aug 16, 2018 6:49 pm

WanderingDoc wrote:
Thu Aug 16, 2018 4:48 pm
aristotelian wrote:
Thu Aug 16, 2018 7:58 am
Retire early.
That's not for everyone. Warren Buffett didn't. Marc Cuban didn't. Grant Cardone didn't. Ben Franklin didn't. Richard Feynman didn't. The list goes on. Actually, anyone I admire or respect across the board - did not retire early.

Retirement is very flexible concept. I would argue that those people retired but did what the liked.
Yes, if your purpose in life is to be admired by strangers retiring early is not the way. But what is the chance to end up admired?
Anyway it is irrelevant if one wants to retire early or not at 33. What is relevant is the option to do it. What you wish at 33 might change completely at 43. Or 53.
For me Roth never made any sense. I think is good only for young people with low incomes.

Jimmy Mac 33
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by Jimmy Mac 33 » Thu Aug 16, 2018 7:01 pm

Sorry for my ignorance - but how can one under 50 years old contribute $5500 to a Roth IRA if your MAGI is greater than $133,000 for a single individual - as the poster appears to be? Thanks!

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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by Nate79 » Thu Aug 16, 2018 8:29 pm

Jimmy Mac 33 wrote:
Thu Aug 16, 2018 7:01 pm
Sorry for my ignorance - but how can one under 50 years old contribute $5500 to a Roth IRA if your MAGI is greater than $133,000 for a single individual - as the poster appears to be? Thanks!
Backdoor Roth.

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tfb
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by tfb » Thu Aug 16, 2018 8:43 pm

ALostCause2 wrote:
Wed Aug 15, 2018 8:25 pm
Investment Rate:
- Taxable: 195.0 k /yr
- 403b: 23.8 k /yr (pretax, includes match)
- 457(non-gov): 18.5 k /yr (pretax, no match)
- IRA: 5.5 k /yr (ROTH)
Because your 403b and 457 contributions make up less than 15% of your total annual savings, I don't think you need to worry about whether they should be Roth or pre-tax. When you take into account the issues others brought up about non-gov 457, these contributions play even a smaller role. Keep them pre-tax and think of them as insurance or option for other plans (retiring early, taking a sabbatical, career interrupted by illness, ...).
Harry Sit, taking a break from the forums.

JBTX
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by JBTX » Thu Aug 16, 2018 8:45 pm

Starfish wrote:
Thu Aug 16, 2018 6:49 pm
WanderingDoc wrote:
Thu Aug 16, 2018 4:48 pm
aristotelian wrote:
Thu Aug 16, 2018 7:58 am
Retire early.
That's not for everyone. Warren Buffett didn't. Marc Cuban didn't. Grant Cardone didn't. Ben Franklin didn't. Richard Feynman didn't. The list goes on. Actually, anyone I admire or respect across the board - did not retire early.

Retirement is very flexible concept. I would argue that those people retired but did what the liked.
Yes, if your purpose in life is to be admired by strangers retiring early is not the way. But what is the chance to end up admired?
Anyway it is irrelevant if one wants to retire early or not at 33. What is relevant is the option to do it. What you wish at 33 might change completely at 43. Or 53.
For me Roth never made any sense. I think is good only for young people with low incomes.
You seem to be implying that people that dont retire early continue to work out of vanity. If that is the intent, it is a ridiculous assertion. If I expressed how I really feel about that my post would get deleted.

There are other situations in the middle income tax brackets where Roth can also make sense. Not everybody will retire early, some people will have other income in retirement, social security tends to increase your retirement marginal rates even at modest incomes, and there are estate planning benefits with Roth.

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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by CppCoder » Thu Aug 16, 2018 9:10 pm

For high income earners with high savings rates, I like Roth. First, it essentially opens up more tax deferred space as 18.5k post tax is "bigger" than 18.5 pre tax. Second, when you're already saving so much money, unless you drastically change your habits in retirement, you won't spend it in retirement either. If you aren't planning to spend it, Roth is a much better legacy vehicle. Let's be realistic, though. You are optimizing around a second or third order effect, and it really doesn't matter in terms of the quality of your life. If you can't decide, flip a coin. It's basically heads you win, tails you win, so don't stress this decision.

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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by aristotelian » Thu Aug 16, 2018 10:32 pm

WanderingDoc wrote:
Thu Aug 16, 2018 4:48 pm
aristotelian wrote:
Thu Aug 16, 2018 7:58 am
Retire early.
That's not for everyone. Warren Buffett didn't. Marc Cuban didn't. Grant Cardone didn't. Ben Franklin didn't. Richard Feynman didn't. The list goes on. Actually, anyone I admire or respect across the board - did not retire early. Early retirement forums are filled with doom and gloom folks, penny pinchers, global warming worriers, and those who generally like to hold a moral authority over others. And yes, I am generalizing.
It's an option. If OP is interested in early retirement, he would not have to worry about RMDs and would get much more bang for his buck by saving pretax. I would rather retire a few years early than give half my money to the government when I am in my 50s and 60s. Of course if OP loves his job, that is an option too.

letsgobobby
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by letsgobobby » Thu Aug 16, 2018 11:01 pm

Traditional. Your taxable investing is already your biggest hedge against future higher marginal tax rates. A small traditional account would be your only hedge against lower.

Starfish
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by Starfish » Fri Aug 17, 2018 6:22 pm

JBTX wrote:
Thu Aug 16, 2018 8:45 pm
Starfish wrote:
Thu Aug 16, 2018 6:49 pm
WanderingDoc wrote:
Thu Aug 16, 2018 4:48 pm
aristotelian wrote:
Thu Aug 16, 2018 7:58 am
Retire early.
That's not for everyone. Warren Buffett didn't. Marc Cuban didn't. Grant Cardone didn't. Ben Franklin didn't. Richard Feynman didn't. The list goes on. Actually, anyone I admire or respect across the board - did not retire early.

Retirement is very flexible concept. I would argue that those people retired but did what the liked.
Yes, if your purpose in life is to be admired by strangers retiring early is not the way. But what is the chance to end up admired?
Anyway it is irrelevant if one wants to retire early or not at 33. What is relevant is the option to do it. What you wish at 33 might change completely at 43. Or 53.
For me Roth never made any sense. I think is good only for young people with low incomes.
You seem to be implying that people that dont retire early continue to work out of vanity. If that is the intent, it is a ridiculous assertion.
I was referring strictly to the category of people discussed in the post (people admired and respected) and it is pretty clear from the quote.
It is not retiring early I am concerned about but the peace of mind brought by the OPTION do do so. And the fact that one can chose what to work on with less regard about the money. Financial independence, if you like the term more, although in my head is about the same thing.

JBTX
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by JBTX » Fri Aug 17, 2018 7:05 pm

Starfish wrote:
Fri Aug 17, 2018 6:22 pm
JBTX wrote:
Thu Aug 16, 2018 8:45 pm
Starfish wrote:
Thu Aug 16, 2018 6:49 pm
WanderingDoc wrote:
Thu Aug 16, 2018 4:48 pm
aristotelian wrote:
Thu Aug 16, 2018 7:58 am
Retire early.
That's not for everyone. Warren Buffett didn't. Marc Cuban didn't. Grant Cardone didn't. Ben Franklin didn't. Richard Feynman didn't. The list goes on. Actually, anyone I admire or respect across the board - did not retire early.

Retirement is very flexible concept. I would argue that those people retired but did what the liked.
Yes, if your purpose in life is to be admired by strangers retiring early is not the way. But what is the chance to end up admired?
Anyway it is irrelevant if one wants to retire early or not at 33. What is relevant is the option to do it. What you wish at 33 might change completely at 43. Or 53.
For me Roth never made any sense. I think is good only for young people with low incomes.
You seem to be implying that people that dont retire early continue to work out of vanity. If that is the intent, it is a ridiculous assertion.
I was referring strictly to the category of people discussed in the post (people admired and respected) and it is pretty clear from the quote.
It is not retiring early I am concerned about but the peace of mind brought by the OPTION do do so. And the fact that one can chose what to work on with less regard about the money. Financial independence, if you like the term more, although in my head is about the same thing.
So you really think Warren buffet and Jack Bogle continue to work due to vanity and desire for public affection? Again, if so, that is ridiculous.

The topic is traditional vs Roth. Traditional works best when you FULLY retire early and do Roth conversions. Switching careers at an older age doesn't necessarily help as much if you are interested in doing pre social security Roth conversions.

WanderingDoc
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by WanderingDoc » Fri Aug 17, 2018 10:49 pm

JBTX wrote:
Fri Aug 17, 2018 7:05 pm
Starfish wrote:
Fri Aug 17, 2018 6:22 pm
JBTX wrote:
Thu Aug 16, 2018 8:45 pm
Starfish wrote:
Thu Aug 16, 2018 6:49 pm
WanderingDoc wrote:
Thu Aug 16, 2018 4:48 pm


That's not for everyone. Warren Buffett didn't. Marc Cuban didn't. Grant Cardone didn't. Ben Franklin didn't. Richard Feynman didn't. The list goes on. Actually, anyone I admire or respect across the board - did not retire early.

Retirement is very flexible concept. I would argue that those people retired but did what the liked.
Yes, if your purpose in life is to be admired by strangers retiring early is not the way. But what is the chance to end up admired?
Anyway it is irrelevant if one wants to retire early or not at 33. What is relevant is the option to do it. What you wish at 33 might change completely at 43. Or 53.
For me Roth never made any sense. I think is good only for young people with low incomes.
You seem to be implying that people that dont retire early continue to work out of vanity. If that is the intent, it is a ridiculous assertion.
I was referring strictly to the category of people discussed in the post (people admired and respected) and it is pretty clear from the quote.
It is not retiring early I am concerned about but the peace of mind brought by the OPTION do do so. And the fact that one can chose what to work on with less regard about the money. Financial independence, if you like the term more, although in my head is about the same thing.
So you really think Warren buffet and Jack Bogle continue to work due to vanity and desire for public affection? Again, if so, that is ridiculous.

The topic is traditional vs Roth. Traditional works best when you FULLY retire early and do Roth conversions. Switching careers at an older age doesn't necessarily help as much if you are interested in doing pre social security Roth conversions.
If someone plans to earn a 7-figure income in their 50s and 60s, would you say 100% Roth (401k and backdoor) is the best option at present time (age 30s)?
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

Starfish
Posts: 386
Joined: Wed Aug 15, 2018 6:33 pm

Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by Starfish » Fri Aug 17, 2018 10:59 pm

JBTX wrote:
Fri Aug 17, 2018 7:05 pm
Starfish wrote:
Fri Aug 17, 2018 6:22 pm
JBTX wrote:
Thu Aug 16, 2018 8:45 pm
Starfish wrote:
Thu Aug 16, 2018 6:49 pm
WanderingDoc wrote:
Thu Aug 16, 2018 4:48 pm


That's not for everyone. Warren Buffett didn't. Marc Cuban didn't. Grant Cardone didn't. Ben Franklin didn't. Richard Feynman didn't. The list goes on. Actually, anyone I admire or respect across the board - did not retire early.

Retirement is very flexible concept. I would argue that those people retired but did what the liked.
Yes, if your purpose in life is to be admired by strangers retiring early is not the way. But what is the chance to end up admired?
Anyway it is irrelevant if one wants to retire early or not at 33. What is relevant is the option to do it. What you wish at 33 might change completely at 43. Or 53.
For me Roth never made any sense. I think is good only for young people with low incomes.
You seem to be implying that people that dont retire early continue to work out of vanity. If that is the intent, it is a ridiculous assertion.
I was referring strictly to the category of people discussed in the post (people admired and respected) and it is pretty clear from the quote.
It is not retiring early I am concerned about but the peace of mind brought by the OPTION do do so. And the fact that one can chose what to work on with less regard about the money. Financial independence, if you like the term more, although in my head is about the same thing.
So you really think Warren buffet and Jack Bogle continue to work due to vanity and desire for public affection? Again, if so, that is ridiculous.

The topic is traditional vs Roth. Traditional works best when you FULLY retire early and do Roth conversions. Switching careers at an older age doesn't necessarily help as much if you are interested in doing pre social security Roth conversions.
No, I think that they are practically retired because they pursue hobbies. I assume what they do is the thing they like the best and they have nothing they wish to do more.
It is true though that I do not understand this level of singularity in ones interests.

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celia
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Location: SoCal

Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by celia » Fri Aug 17, 2018 11:35 pm

What do you mean by "switch everything to Roth"?

Do you mean start contributing to the Roth part of your retirement plans? If so, the employer match still needs to go to tax-deferred, even if the plan can accept Roth contributions.

If you mean you would convert all the pre-tax (over multiple years) to a Roth IRA, I believe you first have to leave the company. Very few plans allow that while still employed there.

If you mean to convert from pre-tax to Roth in the same plan, does the plan allow that?

desafinado
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by desafinado » Sat Aug 18, 2018 2:12 am

WanderingDoc wrote:
Fri Aug 17, 2018 10:49 pm
If someone plans to earn a 7-figure income in their 50s and 60s, would you say 100% Roth (401k and backdoor) is the best option at present time (age 30s)?
i think trad is still better in this case. if everything works out, money is unlikely to be a limiting factor in this person's life satisfaction. if it doesn't, trad will have worked better.

JBTX
Posts: 4109
Joined: Wed Jul 26, 2017 12:46 pm

Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by JBTX » Sat Aug 18, 2018 9:30 am

WanderingDoc wrote:
Fri Aug 17, 2018 10:49 pm
JBTX wrote:
Fri Aug 17, 2018 7:05 pm
Starfish wrote:
Fri Aug 17, 2018 6:22 pm
JBTX wrote:
Thu Aug 16, 2018 8:45 pm
Starfish wrote:
Thu Aug 16, 2018 6:49 pm



Retirement is very flexible concept. I would argue that those people retired but did what the liked.
Yes, if your purpose in life is to be admired by strangers retiring early is not the way. But what is the chance to end up admired?
Anyway it is irrelevant if one wants to retire early or not at 33. What is relevant is the option to do it. What you wish at 33 might change completely at 43. Or 53.
For me Roth never made any sense. I think is good only for young people with low incomes.
You seem to be implying that people that dont retire early continue to work out of vanity. If that is the intent, it is a ridiculous assertion.
I was referring strictly to the category of people discussed in the post (people admired and respected) and it is pretty clear from the quote.
It is not retiring early I am concerned about but the peace of mind brought by the OPTION do do so. And the fact that one can chose what to work on with less regard about the money. Financial independence, if you like the term more, although in my head is about the same thing.
So you really think Warren buffet and Jack Bogle continue to work due to vanity and desire for public affection? Again, if so, that is ridiculous.

The topic is traditional vs Roth. Traditional works best when you FULLY retire early and do Roth conversions. Switching careers at an older age doesn't necessarily help as much if you are interested in doing pre social security Roth conversions.
If someone plans to earn a 7-figure income in their 50s and 60s, would you say 100% Roth (401k and backdoor) is the best option at present time (age 30s)?
It depends on:

1. How much you are making now
2. Will you have income beyond your 70s

Having said that, a high income in retirement definitely favors Roth. If my income was low and I expected
It to go up a lot yes I'd probably go all Roth now and switch to traditional when my income went up. As I've said repeatedly though, I think there is value in having both, because it is impossible to know for sure what income you wilL have 40 years down the road and what the tax rates will be at that point.

JBTX
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Joined: Wed Jul 26, 2017 12:46 pm

Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by JBTX » Sat Aug 18, 2018 9:35 am

desafinado wrote:
Sat Aug 18, 2018 2:12 am
WanderingDoc wrote:
Fri Aug 17, 2018 10:49 pm
If someone plans to earn a 7-figure income in their 50s and 60s, would you say 100% Roth (401k and backdoor) is the best option at present time (age 30s)?
i think trad is still better in this case. if everything works out, money is unlikely to be a limiting factor in this person's life satisfaction. if it doesn't, trad will have worked better.
I disagree with this. I've heard this notion before here. The assertion that if your income Is high enough then you won't care about taxes. I can assure you if you talk to people with high 7 figures or 8 figure wealth they definitely care about their taxes.

JBTX
Posts: 4109
Joined: Wed Jul 26, 2017 12:46 pm

Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by JBTX » Sat Aug 18, 2018 9:40 am

Starfish wrote:
Fri Aug 17, 2018 10:59 pm
JBTX wrote:
Fri Aug 17, 2018 7:05 pm
Starfish wrote:
Fri Aug 17, 2018 6:22 pm
JBTX wrote:
Thu Aug 16, 2018 8:45 pm
Starfish wrote:
Thu Aug 16, 2018 6:49 pm



Retirement is very flexible concept. I would argue that those people retired but did what the liked.
Yes, if your purpose in life is to be admired by strangers retiring early is not the way. But what is the chance to end up admired?
Anyway it is irrelevant if one wants to retire early or not at 33. What is relevant is the option to do it. What you wish at 33 might change completely at 43. Or 53.
For me Roth never made any sense. I think is good only for young people with low incomes.
You seem to be implying that people that dont retire early continue to work out of vanity. If that is the intent, it is a ridiculous assertion.
I was referring strictly to the category of people discussed in the post (people admired and respected) and it is pretty clear from the quote.
It is not retiring early I am concerned about but the peace of mind brought by the OPTION do do so. And the fact that one can chose what to work on with less regard about the money. Financial independence, if you like the term more, although in my head is about the same thing.
So you really think Warren buffet and Jack Bogle continue to work due to vanity and desire for public affection? Again, if so, that is ridiculous.

The topic is traditional vs Roth. Traditional works best when you FULLY retire early and do Roth conversions. Switching careers at an older age doesn't necessarily help as much if you are interested in doing pre social security Roth conversions.
No, I think that they are practically retired because they pursue hobbies. I assume what they do is the thing they like the best and they have nothing they wish to do more.
It is true though that I do not understand this level of singularity in ones interests.
And I don't understand the worship of retirement by some. I tend to think of hobbies as something that supplement your life, not something that sustains it. It isn't inconceivable to me that to some people income generating activities are more stimulating than non income generating ones.

desafinado
Posts: 119
Joined: Wed Dec 28, 2016 3:14 am

Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by desafinado » Sat Aug 18, 2018 9:52 am

JBTX wrote:
Sat Aug 18, 2018 9:35 am
desafinado wrote:
Sat Aug 18, 2018 2:12 am
WanderingDoc wrote:
Fri Aug 17, 2018 10:49 pm
If someone plans to earn a 7-figure income in their 50s and 60s, would you say 100% Roth (401k and backdoor) is the best option at present time (age 30s)?
i think trad is still better in this case. if everything works out, money is unlikely to be a limiting factor in this person's life satisfaction. if it doesn't, trad will have worked better.
I disagree with this. I've heard this notion before here. The assertion that if your income Is high enough then you won't care about taxes. I can assure you if you talk to people with high 7 figures or 8 figure wealth they definitely care about their taxes.
If you have a high 7 figure or 8 figure net worth, most of your assets are in taxable (barring any shenanigans) and the couple hundred thousand dollars of additional taxes you *might* pay in additional taxes is not gonna move the needle. Yes you will feel a little peeved about it but it’s a good problem to have and I don’t think people should think it’s a bad move ex ante to do trad.

randomguy
Posts: 6504
Joined: Wed Sep 17, 2014 9:00 am

Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by randomguy » Sat Aug 18, 2018 10:14 am

JBTX wrote:
Sat Aug 18, 2018 9:35 am
desafinado wrote:
Sat Aug 18, 2018 2:12 am
WanderingDoc wrote:
Fri Aug 17, 2018 10:49 pm
If someone plans to earn a 7-figure income in their 50s and 60s, would you say 100% Roth (401k and backdoor) is the best option at present time (age 30s)?
i think trad is still better in this case. if everything works out, money is unlikely to be a limiting factor in this person's life satisfaction. if it doesn't, trad will have worked better.
I disagree with this. I've heard this notion before here. The assertion that if your income Is high enough then you won't care about taxes. I can assure you if you talk to people with high 7 figures or 8 figure wealth they definitely care about their taxes.
Yeah but you have to look at the options. They might be something like this
a) Retire early. TIRA gives net 100k/year. ROTH gives net 80k (i.e. you over payed in taxes)
b) retire late. TIRA gives 200k/year. ROTH gives 220k

Do you worry more about ending up in case a or case b? You lose 20k either way but to me the loss of 20k in case a is worse.

curious george
Posts: 23
Joined: Sat Jul 27, 2013 11:24 pm

Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by curious george » Sat Aug 18, 2018 10:14 am

I would think that if you used your tax deferred accounts to hold your bonds and your taxable accounts for your equities - your problem should largely be solved - particularly since you are contributing so much to your taxable account.
Although your bond percentage may be low now, it will presumably be higher around the time you actually retire or as you age (if you don't retire). This will limit the end value of your 401k.

There are items to consider: such as any interest in estate planning etc and the benefits of reducing your estate if you exceed standard (tax free) lifetime inheritance limits.

You could also "hedge" your bets and go 50:50 between ROTH/regular if your plan allows you to do this.

randomguy
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by randomguy » Sat Aug 18, 2018 10:20 am

WanderingDoc wrote:
Fri Aug 17, 2018 10:49 pm


If someone plans to earn a 7-figure income in their 50s and 60s, would you say 100% Roth (401k and backdoor) is the best option at present time (age 30s)?
I would say 100% traditional. You aren't going to get more than 4-5 million (real) in traditional so you are only going to be paying ~20% tax on that versus 37% that you can deduct at. The rest of your money in retirement will be in taxable where you pay LTGC of ~24%. I don't think tax drag will make up for a 10%+ difference in rates. Throw in a 200k/year pension and the ROTH would probably be better.

WanderingDoc
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by WanderingDoc » Sat Aug 18, 2018 10:36 am

JBTX wrote:
Sat Aug 18, 2018 9:40 am
Starfish wrote:
Fri Aug 17, 2018 10:59 pm
JBTX wrote:
Fri Aug 17, 2018 7:05 pm
Starfish wrote:
Fri Aug 17, 2018 6:22 pm
JBTX wrote:
Thu Aug 16, 2018 8:45 pm


You seem to be implying that people that dont retire early continue to work out of vanity. If that is the intent, it is a ridiculous assertion.
I was referring strictly to the category of people discussed in the post (people admired and respected) and it is pretty clear from the quote.
It is not retiring early I am concerned about but the peace of mind brought by the OPTION do do so. And the fact that one can chose what to work on with less regard about the money. Financial independence, if you like the term more, although in my head is about the same thing.
So you really think Warren buffet and Jack Bogle continue to work due to vanity and desire for public affection? Again, if so, that is ridiculous.

The topic is traditional vs Roth. Traditional works best when you FULLY retire early and do Roth conversions. Switching careers at an older age doesn't necessarily help as much if you are interested in doing pre social security Roth conversions.
No, I think that they are practically retired because they pursue hobbies. I assume what they do is the thing they like the best and they have nothing they wish to do more.
It is true though that I do not understand this level of singularity in ones interests.
And I don't understand the worship of retirement by some. I tend to think of hobbies as something that supplement your life, not something that sustains it. It isn't inconceivable to me that to some people income generating activities are more stimulating than non income generating ones.
Well said.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

Starfish
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by Starfish » Sat Aug 18, 2018 1:37 pm

JBTX wrote:
Sat Aug 18, 2018 9:40 am
And I don't understand the worship of retirement by some. I tend to think of hobbies as something that supplement your life, not something that sustains it. It isn't inconceivable to me that to some people income generating activities are more stimulating than non income generating ones.
It is pretty simple. The assumption is that you have multiple hobbies and interests. Say reading, traveling, climbing mountains, windsurfing, sailing, fishing, social life, working out etc. One of them could be a job, sure, but then you neglect the others. Many people would like a more complete life. Many of these activities are related to health and age, and not only physically.
Another problem is that at 33 you know nothing about the future. Maximizing savings and tax advantages now probably is a better idea than the assumption that you would make millions in your 60s, you will maintain interest in the job you have, you will stay healthy, the stock market will keep growing at a good pace and the government will not tax Roth in 30 years. Too many assumptions for my taste with very limited - if any - upside.

JBTX
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by JBTX » Sat Aug 18, 2018 2:03 pm

Starfish wrote:
Sat Aug 18, 2018 1:37 pm
JBTX wrote:
Sat Aug 18, 2018 9:40 am
And I don't understand the worship of retirement by some. I tend to think of hobbies as something that supplement your life, not something that sustains it. It isn't inconceivable to me that to some people income generating activities are more stimulating than non income generating ones.
It is pretty simple. The assumption is that you have multiple hobbies and interests. Say reading, traveling, climbing mountains, windsurfing, sailing, fishing, social life, working out etc. One of them could be a job, sure, but then you neglect the others. Many people would like a more complete life. Many of these activities are related to health and age, and not only physically.
Another problem is that at 33 you know nothing about the future. Maximizing savings and tax advantages now probably is a better idea than the assumption that you would make millions in your 60s, you will maintain interest in the job you have, you will stay healthy, the stock market will keep growing at a good pace and the government will not tax Roth in 30 years. Too many assumptions for my taste with very limited - if any - upside.
I'm in my mid 50s with teenage kids. The reality for some is that those hobbies that were self sustaining in your 20s and 30s may not be for various reasons in middle or older ages. There are more physical hobbies that I enjoyed at that I haven't don't for 20 years and don't see myself picking them back up in the next few years.

The problem I see is that many of the things that seem really interesting in retirement cost money, and I am not a big fan of depleting my nest egg at this age to do this stuff for 10 years. I would like to travel. But I'm not going to stay at hostels or backpack around the world. I do hope to do some travel but it will likely be limited for various reasons, including the cost of it. Things like reading books at the library or gardening etc are either only modestly enjoyable ot something like gardening would be worse than a job to me.

I understand to each his / her own, and everybody is different. When I was in my lower 30s I dreamed of retirement. I made spreadsheets that had me retiring at 55. I had worked 10 years and hated many aspects of my job. My work priorities were wrong. I got upset when bill or Jane got promoted 3 months ahead of me. I got upset with people up the chain who had differing points of view or priorities than me. I got upset when my accomplishments were not sufficiently valued or appreciated.

However taking 5 months after a layoff, and since then having a few multi month breaks, plus having a family, my priorities have changed. I did some travel, took up golf, enjoyed some free time, spent more time with my kids during later breaks. When I went back to work, my POV changed. While there are still things I don't like, I brush off many things that used to bother me. There have been a couple of jobs that I didn't like and I quickly bailed out of them.

Ultimate retirement for me won't likely be a full stop decision because I am itching to travel or climb mountains or spend time at the library. It will probably be the point when I feel we have enough money given our situation, and it becomes too difficult to find work that I kind of enjoy.

As to Roth vs traditional, to me if you have or will have sufficient traditional to fill up the lowest brackets, don't plan to retire extremely early, or will have other income in retirement, or have specific plans for estate planning, and currently have a marginal rate in the 20s, Roth can be a very viable option.

lws
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by lws » Sun Aug 19, 2018 2:35 pm

I commend you for acknowledging that luck plays a part on our lives.
I made maximum annual contributions to a 457(b), Traditional IRA, and Roth IRA. It worked out well.
Like you, I tried to predict the future, but I found it to be futile.

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Earl Lemongrab
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Re: High tax bracket - Go 100% Roth in tax advantaged?

Post by Earl Lemongrab » Sun Aug 19, 2018 4:46 pm

I never found work to be all that "sustaining". I was a software engineer for 20 years or so. The work did was at times interesting and at times a bit of a drudge. If I do software development now, it's what I want to do. And I can stop and spend time doing other things as I choose. My time is my own.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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