To Roth IRA or Not

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calimstng66
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To Roth IRA or Not

Post by calimstng66 » Fri Oct 12, 2018 7:16 am

First time poster, few month avid reader. First off thanks to all of you as Ive really started to do my hw on investing and retirement these forums have been awesome.

Im 33 and in a career field with contract guaranteed yearly raises. I will stop working at about 55 years of age with a pension of nearly 80k. I have a work tax deferred 457 retirement plan (no employer match) with about 40k. I have recently upped my contributions to the work retirement account to put roughly 10% of my gross salary (100k). I have been wanting to start a ROTH IRA that way I have an after-tax retirement account as well. I like the idea of having both pre tax and post tax accounts. With all that said, my issue is this...

Looking at the contracted raises and some mandatory overtime, I would probably hit the phase out 120k in about 3 years and hit the ROTH IRA maximum in 4-6 years. I understand the time frame to contribute is small no matter what but the idea of 26 years of compounding wonderfulness is appealing to me.

I also have a brokerage account with about 20k.


Is a ROTH IRA even worth it being I may begin a phase out in 3 years and hit that income limit 4-6 years?

Should I just skip the ROTH IRA and push more money into the work retirement 457 plan?

Should I skip the ROTH IRA and split some additional money into both the 457 plan and the brokerage account?

Do the Roth IRA and consider backdoor ROTH if still available when im tapped out in a few years for my contributions?

Any other retirement ideas?

Dandy
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Re: To ROTH IRA or Not

Post by Dandy » Fri Oct 12, 2018 7:40 am

Roth's weren't available for almost all my working career. I plowed a lot of money in my 401k and only had a few years to contribute to a Roth. I enjoyed the tax savings of investing in the 401k especially in my higher earning years. I have a decent pension and am took SS at age 70. And now have large RMDs each year that I don't really need so now I'm in a high tax bracket for the rest of my retirement. Hey, that was the deal get the tax breaks and then get taxed on the RMDs - still a very good deal.

I wish my retirement assets were more like 2/3 TIRA and 1/3 Roth. You may have the opportunity of doing large Roth conversions if you retire early. I did some but should have done more. If I had it all to do over I would have done a small allocation to Roth during my working years.

sachatur
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Joined: Mon Aug 31, 2015 9:50 pm

Re: To ROTH IRA or Not

Post by sachatur » Fri Oct 12, 2018 8:15 am

I thought I had posted earlier, but maybe not?
I would do the Roth IRA, and I would increase my 457 contributions to $18.5k.
The 120K limit is MAGI, and not gross. So you may have a few more years before you hit the limit.

rkhusky
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Re: To ROTH IRA or Not

Post by rkhusky » Fri Oct 12, 2018 8:44 am

Maximize all retirement accounts, if possible, before taxable investing. If your income is too high to directly contribute to a Roth IRA, you can use the two-step Backdoor Roth method (only problem is if you have a large Traditional (non-Roth) IRA).

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CyclingDuo
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Re: To ROTH IRA or Not

Post by CyclingDuo » Fri Oct 12, 2018 9:17 am

calimstng66 wrote:
Fri Oct 12, 2018 7:16 am
First time poster, few month avid reader. First off thanks to all of you as Ive really started to do my hw on investing and retirement these forums have been awesome.

Im 33 and in a career field with contract guaranteed yearly raises. I will stop working at about 55 years of age with a pension of nearly 80k. I have a work tax deferred 457 retirement plan (no employer match) with about 40k. I have recently upped my contributions to the work retirement account to put roughly 10% of my gross salary (100k). I have been wanting to start a ROTH IRA that way I have an after-tax retirement account as well. I like the idea of having both pre tax and post tax accounts. With all that said, my issue is this...

Looking at the contracted raises and some mandatory overtime, I would probably hit the phase out 120k in about 3 years and hit the ROTH IRA maximum in 4-6 years. I understand the time frame to contribute is small no matter what but the idea of 26 years of compounding wonderfulness is appealing to me.

I also have a brokerage account with about 20k.


Is a ROTH IRA even worth it being I may begin a phase out in 3 years and hit that income limit 4-6 years?

Should I just skip the ROTH IRA and push more money into the work retirement 457 plan?

Should I skip the ROTH IRA and split some additional money into both the 457 plan and the brokerage account?

Do the Roth IRA and consider backdoor ROTH if still available when im tapped out in a few years for my contributions?

Any other retirement ideas?
Nothing wrong with maxing out your Roth IRA for a few years while you can, and then the phased out amount until that eventually goes away as your income increases. :beer
"Everywhere is within walking distance if you have the time." ~ Steven Wright

calimstng66
Posts: 4
Joined: Fri Oct 12, 2018 7:11 am

Re: To ROTH IRA or Not

Post by calimstng66 » Fri Oct 12, 2018 9:29 am

That is kind of how I am leaning...

Ive played around with some speculative calculators and such... and If i can make a modest 6% or 7% yearly return avg on my Roth IRA I will be in a good place with pension and work retirement 457. Well i guess a better place, i feel like will already be in a happy place.

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David Jay
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Re: To ROTH IRA or Not

Post by David Jay » Fri Oct 12, 2018 9:57 am

Cali:

There are some "clocks" that limit your withdrawals from Roth accounts. I would open one now while you qualify, even if you stop contributing in a few years.

That way, when you get to age 55 (or whatever) and you want to use your Roth creatively, the clock qualification is met.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

aristotelian
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Re: To ROTH IRA or Not

Post by aristotelian » Fri Oct 12, 2018 10:01 am

I would definitely do 457 ahead of Roth as long as it's a good plan with good options. Roth IRA with pretax employer account is generally a good combination.

If you stop at 55, would you have an option to delay the pension or take a lump sum? If so, that would definitely argue for saving pretax as much as you can.

Darth Xanadu
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Re: To ROTH IRA or Not

Post by Darth Xanadu » Fri Oct 12, 2018 10:14 am

rkhusky wrote:
Fri Oct 12, 2018 8:44 am
Maximize all retirement accounts, if possible, before taxable investing. If your income is too high to directly contribute to a Roth IRA, you can use the two-step Backdoor Roth method (only problem is if you have a large Traditional (non-Roth) IRA).
I agree with this. Lots of advantages of a Roth type account. As a previous poster alluded to, having tax diversification down the road opens up some options to manage taxes.
"A courageous teacher, failure is."

calimstng66
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Joined: Fri Oct 12, 2018 7:11 am

Re: To ROTH IRA or Not

Post by calimstng66 » Fri Oct 12, 2018 10:20 am

I’ve looked at the funds in my 457 account...I’m not the biggest fan of our options but they are okay. Within the next 3-5years will also be maxing out my 457.

And for the Roth if I open it... I look at that account to be for the tax diversifiction as mentioned by others above and as well as some accessible fun money/emergency as I expect my work pension and 457 to be my main income source

chevca
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Re: To ROTH IRA or Not

Post by chevca » Fri Oct 12, 2018 10:33 am

As mentioned, you can still contribute to a Roth IRA through the backdoor Roth method even if you go above the income limits. I would contribute to the Roth IRA if I were you. I would also max out the 457 through work.

Do you have a Roth option with your 457 plan? That may be something to consider also. There's a case to be made for folks with a healthy pension to look forward to, to put more or most in Roth accounts. Your pension alone will put you in a middle of the road tax bracket. Future tax changes unknown, of course. Will you get social security someday as well, or do you not pay into it due to your job? That would bump your income up that much more in retirement. Say you have $80k to $100k in income from pension and maybe social security. Everything or anything you take out of the traditional retirement accounts is basically taxed above those income levels. But, if you have it in Roth accounts, everything or anything you take out isn't taxed that way. Of course, you pay taxes on those contributions now. And, if you are in a higher tax bracket now, then traditional is likely better. It's a bit of a guessing game as to what you think your tax bracket in retirement will be compared to now. Just something to think about.

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LadyGeek
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Re: To Roth IRA or Not

Post by LadyGeek » Fri Oct 12, 2018 4:31 pm

Welcome! I changed your thread title from "ROTH IRA" to "Roth IRA". It's the name of a senator, not an acronym.

See the wiki: Roth IRA
wiki wrote:Named after US Senator William Roth, Roth IRAs were established by the Taxpayer Relief Act of 1997.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

calimstng66
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Joined: Fri Oct 12, 2018 7:11 am

Re: To ROTH IRA or Not

Post by calimstng66 » Fri Oct 12, 2018 5:19 pm

chevca wrote:
Fri Oct 12, 2018 10:33 am
As mentioned, you can still contribute to a Roth IRA through the backdoor Roth method even if you go above the income limits. I would contribute to the Roth IRA if I were you. I would also max out the 457 through work.

Do you have a Roth option with your 457 plan? That may be something to consider also. There's a case to be made for folks with a healthy pension to look forward to, to put more or most in Roth accounts. Your pension alone will put you in a middle of the road tax bracket. Future tax changes unknown, of course. Will you get social security someday as well, or do you not pay into it due to your job? That would bump your income up that much more in retirement. Say you have $80k to $100k in income from pension and maybe social security. Everything or anything you take out of the traditional retirement accounts is basically taxed above those income levels. But, if you have it in Roth accounts, everything or anything you take out isn't taxed that way. Of course, you pay taxes on those contributions now. And, if you are in a higher tax bracket now, then traditional is likely better. It's a bit of a guessing game as to what you think your tax bracket in retirement will be compared to now. Just something to think about.
There is a Roth option as far as how i contribute to my 457 at work... but as i mentioned above the funds available are just okay. Nothing special. I learn more towards not being a big fan of them and why I am venturing out of the workplace plan to one at vanguard or fidelity so I have more control.

I dont foresee bumping into the next tax bracket, but all depending I suppose on what the brackets are in 22 years, but either way I feel like will be getting a "raise" when I leave California when I retire due to the move to a less expensive state in both state taxes and general expenses.

MathWizard
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Re: To Roth IRA or Not

Post by MathWizard » Fri Oct 12, 2018 5:37 pm

Open a Roth now.

If you ever have the option for a Roth 401k you can use that regardless of income level AFAIK, but
Roth 401k's have RMDs. The way to avoid this is to roll it over into an existing Roth. You won't be able to withdraw
penalty free until 5 years after Jan1 of the year the Roth IRA was opened, not when the rollover happened.

From: https://www.irs.gov/retirement-plans/de ... th-account
Required minimum distributions start at age 70½

Designated Roth accounts are subject to the required minimum distribution rules that apply to 401(k), 403(b) and governmental 457(b) plans. In general, if the participant is retired or an owner, the participant must start receiving distributions from the plan at age 70½, and annual withdrawals will be required based on his or her remaining life expectancy at the time of the withdrawal. Roth IRAs, in comparison, do not require minimum distributions at age 70½.
The following chart provides comparisons:

https://www.irs.gov/retirement-plans/ro ... ison-chart

[links formatted by admin LadyGeek]

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