Allocating 1/3 of Investable Assets to Roth Accounts

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PFInterest
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Allocating 1/3 of Investable Assets to Roth Accounts

Post by PFInterest »

can someone explain to me why this should be a goal, or if it is based of some previous research?

they are advocating 1/2 allocation to Roth in employer plan accounts and Roth conversions during working years for high income professionals.

and contributing more during down market years still doesnt change the fact that your income stayed the same (assumption) and your marginal bracket is still high.

this sounds not ideal to my ears, but i want to hear other thoughts.

stumbled upon it from another site:
https://blog.foxwealthmgmt.com/2018/09/ ... -roth-ira/
aristotelian
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by aristotelian »

The article gives no reasoning. You are right, article is wrong,
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PFInterest
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by PFInterest »

aristotelian wrote: Fri Sep 21, 2018 10:59 am The article gives no reasoning. You are right, article is wrong,
agree.
just wanted to see if anyone had heard/read/knew of something like this previously.
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PFInterest
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by PFInterest »

221 ppl looked and drove on by so far...

bump.
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by bradpevans »

PFInterest wrote: Fri Sep 21, 2018 10:30 am can someone explain to me why this should be a goal, or if it is based of some previous research?

they are advocating 1/2 allocation to Roth in employer plan accounts and Roth conversions during working years for high income professionals.

and contributing more during down market years still doesnt change the fact that your income stayed the same (assumption) and your marginal bracket is still high.

this sounds not ideal to my ears, but i want to hear other thoughts.

stumbled upon it from another site:
https://blog.foxwealthmgmt.com/2018/09/ ... -roth-ira/
I think the are saying do conversions when the market tanks / increase Roth when market tanks. The concept would be the greater growth occurs in the Roth

Suppose your full year of 18k was down to 10k. Conversion tax based on 10K not 18k

And more direct to Roth during down times

So, market timing...
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by WanderingDoc »

PFInterest wrote: Fri Sep 21, 2018 10:30 am can someone explain to me why this should be a goal, or if it is based of some previous research?

they are advocating 1/2 allocation to Roth in employer plan accounts and Roth conversions during working years for high income professionals.

and contributing more during down market years still doesnt change the fact that your income stayed the same (assumption) and your marginal bracket is still high.

this sounds not ideal to my ears, but i want to hear other thoughts.

stumbled upon it from another site:
https://blog.foxwealthmgmt.com/2018/09/ ... -roth-ira/
I am currently 50/50 Roth/traditional in the TSP (more like 45/55 with the match). But the TSP is currently only 4% of my NW, equities about 12%.

I think investing in traditional accounts is akin to giving up on your dreams. I never understood the "I will be in a lower tax bracket in retirement". What!! You should want to be WEALTHIER the older you get, not poorer. You should strive to have more income with every passing year. For example, I intend to earn $300K/yr. in my 30s, $500K/yr. in my 40s, etc.

The advice preached on virtually all index/equity investing forums is mind-blogging to me. If you aren't improving, if you aren't earning more money, YOU ARE GOING BACKWARDS! You should be mentally and physically stronger as well. I think someone along the line, people were lied to and told that they should get mediocre when they get older. I strongly beg to differ.
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Miriam2
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by Miriam2 »

WanderingDoc wrote: . . . I think investing in traditional accounts is akin to giving up on your dreams. I never understood the "I will be in a lower tax bracket in retirement". What!! You should want to be WEALTHIER the older you get, not poorer. You should strive to have more income with every passing year. . . .
I agree! This is important and for us, in retirement, we are in a tax bracket ABOVE what we ever were while working (note, I'm using last years' tax brackets, not sure about this year).

This is because we retired with pensions, take social security, take RMDs and have investments with dividends and capital gains. We worked hard and it all adds up to a good retirement, but also a higher tax bracket. Who would've thunk it :shock: The conventional advice was you'll be in a lower tax bracket in retirement.

I suggest that everyone plan for the possibility of a higher tax bracket upon retirement, just in case.
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by PFInterest »

WanderingDoc wrote: Fri Sep 21, 2018 5:00 pm
The advice preached on virtually all index/equity investing forums is mind-blogging to me. If you aren't improving, if you aren't earning more money, YOU ARE GOING BACKWARDS! You should be mentally and physically stronger as well. I think someone along the line, people were lied to and told that they should get mediocre when they get older. I strongly beg to differ.
thanks for going a little tangent and not answering the question.
so your saying every retiree ever who has dropped a bracket has failed their entire life? ok...
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PFInterest
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by PFInterest »

Miriam2 wrote: Fri Sep 21, 2018 5:23 pm I agree! This is important and for us, in retirement, we are in a tax bracket ABOVE what we ever were while working (note, I'm using last years' tax brackets, not sure about this year).

This is because we retired with pensions, take social security, take RMDs and have investments with dividends and capital gains. We worked hard and it all adds up to a good retirement, but also a higher tax bracket. Who would've thunk it :shock: The conventional advice was you'll be in a lower tax bracket in retirement.

I suggest that everyone plan for the possibility of a higher tax bracket upon retirement, just in case.
again, thanks for not addressing the question. it seems like you didnt do any future planning. good thing your mistake just lead to having money.
also with the tax code change you likely are paying less tax, but why dont you post some numbers.
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by Miriam2 »

^^^ We weren't Bogleheads in the old days :happy Way back when I started my retirement accounts, there were no Roths and all we had available were traditional IRAs. A defined benefit pension plan creates retirement "wealth" that is taxed at the higher income rate, making Roths beneficial in retirement.

I thought we did address the Q. Your article suggests putting 1/3 of one's income into a Roth so that upon retirement, you have a combination of accounts to draw from depending on circumstances and in particular for tax diversification. The different accounts are Roth, traditional pre-tax 401k and taxable.
Having a reasonable allocation to these three areas during retirement will allow you to draw from a combination of accounts and control your income tax bracket post-employment. Keeping track of your progress toward the division during the years leading up to retirement will help you make decisions about allocating extra savings and will help you move toward the Roth when opportunities arise.
If you plan for the possibility of a higher income tax bracket in retirement, you would diversify your accounts ahead of time so that you have flexibility in retirement withdrawals and tax liability.

If you end up in a higher tax bracket upon retirement, then the strategy proposed by your article of having a combination of retirement accounts with a Roth is beneficial because you would have paid lower taxes on the money contributed to the Roth when working and no taxes on the money taken out of the Roth when retired in a higher tax bracket.

If you end up in a lower tax bracket in retirement, then you paid no taxes on the contributions to your pre-tax 401k when working in a higher tax bracket and you pay taxes on the money taken out of the 401k in retirement at a lower tax bracket.

That's how I read the article and it makes sense. Yes, also converting to a Roth when the market is low makes sense because the amount you convert will be taxed at your income rate and since the share-amount converted will be valued at a lower value, the taxes paid per share will be lower.
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Miriam2
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by Miriam2 »

To address your Q, I have read your article as well as the first article the author wrote in the series on how high net worth individuals should save and plan for retirement, and both articles make perfect sense to me in the Boglehead world. Perhaps others could comment on the articles if I'm wrong.

How to Grow Your Roth IRA
How Should You Allocate Savings?
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by Dottie57 »

On conversions from trad Ira to Roth IRA when you are doing backdoor Roth but at prorated tax rates. - maybe a good idea but depends on the math.

Roth conversion from retirement age to RMD - yes if you can afford to pay higher tax amounts.

Roth 401k over regular 401k. Not such good idea for me. I put Money into taxable- flexible

I do wish I had converted during the Great Recession. Hind sight is great.
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by grabiner »

WanderingDoc wrote: Fri Sep 21, 2018 5:00 pm I think investing in traditional accounts is akin to giving up on your dreams. I never understood the "I will be in a lower tax bracket in retirement". What!! You should want to be WEALTHIER the older you get, not poorer. You should strive to have more income with every passing year. For example, I intend to earn $300K/yr. in my 30s, $500K/yr. in my 40s, etc.
Wealth is not the same as tax rate. The primary reason is that wealth doesn't correspond to spending; you will build up your wealth, but plan to only spend a small portion of it every year after you retire. Your wealth (and your ability to spend) may increase or decrease in retirement, depending on what happens to the market. And if you have a large taxable account, some of that wealth will never be taxed; if the account is not depleted, you can leave stock to your heirs with no capital-gains tax on it.

Spending less in retirement does not correspond to a decline in your standard of living, because some of the expenses are likely to have gone away; you won't be paying for your children's college, and you will likely either have no mortgage or have relatively low payments because of inflation.

But even spending does not correspond to tax rates. If you spend the same amount of money in retirement as while working, you will still have lower taxable income, because you paid tax while working on some money you didn't spend (Social Security, Roth contributions) and will not pay tax while retired on some money you do spend (Roth withdrawals, sales of taxable bonds, the basis portion of sales of taxable stocks, 15% of Social Security). If you have a large taxable portfolio, much of the income is from dividends and capital gains, which gives you a lower marginal tax rate than is determined by your taxable income.

You should plan for your income to increase during your career, which makes Roth accounts attractive in the earlier years.
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by Earl Lemongrab »

WanderingDoc wrote: Fri Sep 21, 2018 5:00 pm
I think investing in traditional accounts is akin to giving up on your dreams. I never understood the "I will be in a lower tax bracket in retirement". What!! You should want to be WEALTHIER the older you get, not poorer. You should strive to have more income with every passing year. For example, I intend to earn $300K/yr. in my 30s, $500K/yr. in my 40s, etc.
That makes no sense. Your income goes down in retirement because you're not working anymore. I retired in January, and my income went from my 4/5ths time salary as a software engineer to a 40k a year pension. So my marginal tax rate went from 25% in 2017 to 12% currently (partly reflecting the new tax laws of course). However, I'm wealthiest I've ever been.
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by WanderingDoc »

Earl Lemongrab wrote: Sat Sep 22, 2018 12:52 pm
WanderingDoc wrote: Fri Sep 21, 2018 5:00 pm
I think investing in traditional accounts is akin to giving up on your dreams. I never understood the "I will be in a lower tax bracket in retirement". What!! You should want to be WEALTHIER the older you get, not poorer. You should strive to have more income with every passing year. For example, I intend to earn $300K/yr. in my 30s, $500K/yr. in my 40s, etc.
That makes no sense. Your income goes down in retirement because you're not working anymore. I retired in January, and my income went from my 4/5ths time salary as a software engineer to a 40k a year pension. So my marginal tax rate went from 25% in 2017 to 12% currently (partly reflecting the new tax laws of course). However, I'm wealthiest I've ever been.
I believe your assets should pay you more over time. That's progress. If you have mortgages on 10 rentals that pay you $10K/mo. when the tenants pay off your mortgages 30 years later, that would jump to $25-30K/mo. That's just one example. Most people cannot count on a pension, nor will work for 25-30 years with the same company.
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by PFInterest »

So. No one can explain where the 1/3 to Roth came from other than just made up?
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by JBTX »

WanderingDoc wrote: Fri Sep 21, 2018 5:00 pm

I think investing in traditional accounts is akin to giving up on your dreams. I never understood the "I will be in a lower tax bracket in retirement". What!! You should want to be WEALTHIER the older you get, not poorer. You should strive to have more income with every passing year. For example, I intend to earn $300K/yr. in my 30s, $500K/yr. in my 40s, etc.

The advice preached on virtually all index/equity investing forums is mind-blogging to me. If you aren't improving, if you aren't earning more money, YOU ARE GOING BACKWARDS! You should be mentally and physically stronger as well. I think someone along the line, people were lied to and told that they should get mediocre when they get older. I strongly beg to differ.
The idea is to maximize income, or wealth/cash flow, not to maximize your tax bracket.
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by Miriam2 »

PFInterest wrote: So. No one can explain where the 1/3 to Roth came from other than just made up?
This is where the "1/3 Roth" came from and I wouldn't call it "made up."

The How to Grow Your Roth IRA article you linked spells it out, and also the article links to How Should You Allocate Savings? and other articles from the same author that further explain the author's reasoning. I thought they were pretty much on target for arranging your accounts for tax diversification and reduction in retirement.

They "set a goal of dividing total savings equally among pre-tax accounts, Roth, and taxable/brokerage accounts," and admit it's just a target, not exact. The reason for their one-third in each type of account is based on their experience working with high net-worth clients who end up with huge pre-tax retirement accounts and then have monster RMDs:
As a result, we developed a strategy for high-income professionals to allocate savings in such a way as to focus not simply on current tax savings, but also on tax reduction in retirement. At retirement, we began recommending a targeted savings allocation by tax streams. We set a goal of dividing total savings equally among pre-tax, Roth, and brokerage accounts.

I'll freely admit that we did not arrive at the 3-way division by scientific determination, but because I believe having control over tax brackets is preferential to being held hostage to high fully taxable RMDs.
We could debate whether 1/3 Roth is better or whether 1/2 or 3/4 Roth is better, but the gist of the article's reasoning for tax diversification in retirement makes sense to me in the Boglehead world.
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by patrick »

WanderingDoc wrote: Fri Sep 21, 2018 5:00 pm I am currently 50/50 Roth/traditional in the TSP (more like 45/55 with the match). But the TSP is currently only 4% of my NW, equities about 12%.

I think investing in traditional accounts is akin to giving up on your dreams. I never understood the "I will be in a lower tax bracket in retirement". What!! You should want to be WEALTHIER the older you get, not poorer. You should strive to have more income with every passing year. For example, I intend to earn $300K/yr. in my 30s, $500K/yr. in my 40s, etc.

The advice preached on virtually all index/equity investing forums is mind-blogging to me. If you aren't improving, if you aren't earning more money, YOU ARE GOING BACKWARDS! You should be mentally and physically stronger as well. I think someone along the line, people were lied to and told that they should get mediocre when they get older. I strongly beg to differ.
One can easily have MORE money in retirement at the same time as being in a LOWER tax bracket.

As an example, consider someone with 200K base income who is maxing out retirement accounts but saves little beyond that. To keep it simple, assume the person is in a state with no state income tax and always takes the standard deduction.

While working, contribute 18.5K to a traditional 401K, and gets 8K in employer match which is also traditional. To fully max out available contributions, add 5.5K in backdoor Roth and 27.5K in mega backdoor Roth (note that there is no choice of traditional here). Overall 45% of retirement savings go in as traditional and 55% as Roth. Taxable income is 169.5K which is in the 32% tax bracket, and federal income tax is 35930. Also 2900 in Medicare tax and 7981 in SS tax. Spendable income (after taxes and savings) is 101689.

Now consider an retiree withdrawing the same 200K, split amount the accounts in the same fraction as the money went in. Since 45% is traditional, 90K comes from it leading to 78K in taxable income. This is in the 22% tax bracket, and federal income tax is 13100. There is no SS tax or Medicare tax due, so spendable withdrawals are 186900.

In other words, the amount of money for spending INCREASED by 84%, while the tax bracket DECREASED from 32% to 22%.

Of course the specifics vary by situation. For instance, if your employer doesn't allow the mega backdoor Roth you'd need to save in taxable accounts instead, which would make the results slightly less dramatic, but you'd still be in a lower tax bracket and have lower overall taxes due to only paying at the capital gains rate. If you work in a state that has high state income taxes, the results could be even more dramatic if you moved to a state with lower (or no) state income taxes for retirement.
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by celia »

Miriam2 wrote: Fri Sep 21, 2018 7:35 pm Way back when I started my retirement accounts, there were no Roths and all we had available were traditional IRAs. A defined benefit pension plan creates retirement "wealth" that is taxed at the higher income rate, making Roths beneficial in retirement.
Some of us even started working before IRAs were even "invented". I suspect Miriam2 is in that group with me too. Once tIRAs became available, people slowly ramped up savings for retirement (at a maximum contribution of $1,500 or 2,000 per year[??]) on salaries a fraction of what they are now. :D


As far as the original referenced article, you need to keep in mind that everyone's situation is different. .Some people can never save anything since they don't have a living wage or they can only work part time. Lots of millennials are paying off student loans and saving in taxable for a house down payment. Or they first need to build an Emergency Fund. For those who can save in retirement accounts, it is often best to start saving in Roth when your tax bracket is low (early in your career). Max out all the Roth IRAs and Roth 401Ks you can. Then as your salary tends to increase as time goes on, you may bump up to higher tax brackets. That is when you can start shifting to tax-deferred. Meanwhile, the Roths will continue to grow. By the time you retire, if you had a steady salary increase (compared to the cost of living), you will likely be in your highest tax bracket as you near retirement. Those years can have all tax-deferred contributions. Then if your retirement income will drop you to a lower tax bracket until SS starts, that is a good time to convert. (Also convert in any years you took time off from work or had lower salary.)

So, during your lifetime, under this strategy, you would start out 100% Roth but end up with a mix of Roth and tax-deferred. It is likely that at some point, 1/3 of your retirement savings will be in Roth.
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by Miriam2 »

celia wrote: Some of us even started working before IRAs were even "invented". I suspect Miriam2 is in that group with me too. Once tIRAs became available, people slowly ramped up savings for retirement (at a maximum contribution of $1,500 or 2,000 per year[??]) on salaries a fraction of what they are now. :D
Yup - after working for many years someone told me about this really neat tax-deferred retirement savings tIRA that everyone was getting into. Opened my first tIRA in 1982 and contributed the $2,000 max, put it into a regular money market account earning 9% :D My husband says he earned 16% in his first tIRA money market. Have to declutter the old bank statements to see who has the better memory :mrgreen:
celia wrote:As far as the original referenced article, you need to keep in mind that everyone's situation is different. .Some people can never save anything since they don't have a living wage or they can only work part time. Lots of millennials are paying off student loans and saving in taxable for a house down payment. Or they first need to build an Emergency Fund. For those who can save in retirement accounts, it is often best to start saving in Roth when your tax bracket is low (early in your career). Max out all the Roth IRAs and Roth 401Ks you can. Then as your salary tends to increase as time goes on, you may bump up to higher tax brackets. That is when you can start shifting to tax-deferred. Meanwhile, the Roths will continue to grow. By the time you retire, if you had a steady salary increase (compared to the cost of living), you will likely be in your highest tax bracket as you near retirement. Those years can have all tax-deferred contributions. Then if your retirement income will drop you to a lower tax bracket until SS starts, that is a good time to convert. (Also convert in any years you took time off from work or had lower salary.)

So, during your lifetime, under this strategy, you would start out 100% Roth but end up with a mix of Roth and tax-deferred. It is likely that at some point, 1/3 of your retirement savings will be in Roth.
Very helpful, thank you. Nice strategy 8-)
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by MrBeaver »

celia wrote: Sat Sep 22, 2018 7:01 pm For those who can save in retirement accounts, it is often best to start saving in Roth when your tax bracket is low (early in your career). Max out all the Roth IRAs and Roth 401Ks you can. Then as your salary tends to increase as time goes on, you may bump up to higher tax brackets. That is when you can start shifting to tax-deferred. Meanwhile, the Roths will continue to grow. By the time you retire, if you had a steady salary increase (compared to the cost of living), you will likely be in your highest tax bracket as you near retirement. Those years can have all tax-deferred contributions. Then if your retirement income will drop you to a lower tax bracket until SS starts, that is a good time to convert. (Also convert in any years you took time off from work or had lower salary.)

So, during your lifetime, under this strategy, you would start out 100% Roth but end up with a mix of Roth and tax-deferred. It is likely that at some point, 1/3 of your retirement savings will be in Roth.
This is precisely the (accidental) trajectory I have followed, with a bit of a late start to my career but diligent Roth IRA saving early on in the 0% and 10% brackets. Now in my late 30s, I’m contributing roughly 75/25 traditional/Roth to stay within the top of the 12% bracket, and my assets are roughly 15/45/15/25 Trad/Roth/Taxable/HSA. So far, it looks on track to hit even Roth and Traditional balances at retirement and stay below the 22% bracket at RMD time, with the percentage of taxable subject to how much income growth I experience along the way. If RMDs do put us into the 22% bracket, we will likely just increase QCDs until within the 12% bracket since we won’t need that money anyway.

The biggest piece of mind that I appreciate of our Roth balances is that it provides a little more certainty of after-tax safe withdrawal streams (unless a VAT happens) than traditional, taxable, or Social Security, which seem more at the whims of legislation over the next 20-30 years.
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by elgob.bogle »

MrBeaver et al:

FWIW, the new 2018 tax brackets are scheduled to phase out in 2025 and apparently revert back to 2017 levels. Couldn't quickly locate a great reference, but the reversion is mentioned here: https://obliviousinvestor.com/2018-tax-brackets/

Accordingly, DW will be loading up her ROTH account during 2020-2024 after she retires & and can access her tIRA account from work. She plans to convert as much as possible in the 22% bracket before it zooms back up.

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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by grabiner »

elgob.bogle wrote: Sat Sep 22, 2018 11:53 pm FWIW, the new 2018 tax brackets are scheduled to phase out in 2025 and apparently revert back to 2017 levels.
Actually 2026, but the new brackets will be slightly lower (taxes slightly higher) than they would be under the 2017 rules, because the indexing to chained CPI will remain. If the difference between the original and chained CPI is 0.5%, that will lower the top of each bracket by 4% in 2025 under the lower tax rates, and 4.5% in 2026 under the higher tax rates.
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Grabiner, what does this mean?

Post by retiredjg »

[Thread merged into here, see below. --admin LadyGeek]
grabiner wrote: Sun Sep 23, 2018 9:55 am Actually 2026, but the new brackets will be slightly lower (taxes slightly higher) than they would be under the 2017 rules, because the indexing to chained CPI will remain. If the difference between the original and chained CPI is 0.5%, that will lower the top of each bracket by 4% in 2025 under the lower tax rates, and 4.5% in 2026 under the higher tax rates.
Can you explain this? Pretend I'm a 1st grader. :happy
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Re: Grabiner, what does this mean?

Post by bsteiner »

The tax brackets are indexed for inflation. The Tax Cuts and Jobs Act of 2017 changed the way the inflation adjustments are calculated, so that the adjustments are slightly less than they were under prior law.

While the tax rate reductions are temporary, the change in the way the inflation adjustments are calculated is permanent.

For example, the estate tax exclusion amount was $5,490,000 in 2017, and was scheduled to be $5.6 million in 2018. The 2017 Act doubled the exclusion amount for 2018-25, but because of the change in the formula it's $11,180,000 in 2018 rather than $11.2 million.

So in 2026, if Congress doesn't change the law, the tax brackets will revert to pre-2018 law, except that the top of each bracket will be slightly lower (probably about 1% to 2% lower) than it would have been but for the change in the calculation of the inflation adjustments.

This has very little practical significance.
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Re: Grabiner, what does this mean?

Post by retiredjg »

I think you are saying the rates will go back up to exactly the old rates if the law is not changed. For example 24% will revert to 28%, not something slightly less than 28%. However, the numbers at the bottom and top of each bracket will be slightly smaller than they would have been without the change to how CPI is calculated.

In other words, in 2026 the 28% bracket for a single person might start at $95,000 under the new system but would have been $96,000 under the old system (made up numbers).

Have I got it right?
Last edited by retiredjg on Sun Sep 23, 2018 12:06 pm, edited 1 time in total.
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Re: Grabiner, what does this mean?

Post by JoMoney »

retiredjg wrote: Sun Sep 23, 2018 11:05 amI think you are saying the rates will go back up no matter what...
The rates will go back up if congress doesn't act again to make the current plan permanent, which has been proposed...
http://archive.is/32SNs
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retiredjg
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Re: Grabiner, what does this mean?

Post by retiredjg »

Thanks. I meant 24% will go to 28% instead of something other than 28%....

Poor wording on my part. I'll see if I can clarify that.
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Re: Grabiner, what does this mean?

Post by libralibra »

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Re: Grabiner, what does this mean?

Post by bsteiner »

retiredjg wrote: Sun Sep 23, 2018 11:05 am I think you are saying the rates will go back up to exactly the old rates if the law is not changed. For example 24% will revert to 28%, not something slightly less than 28%. However, the numbers at the bottom and top of each bracket will be slightly smaller than they would have been without the change to how CPI is calculated.

In other words, in 2026 the 28% bracket for a single person might start at $95,000 under the new system but would have been $96,000 under the old system (made up numbers).

Have I got it right?
Yes.
libralibra wrote: Sun Sep 23, 2018 12:26 pm The explanation I read was that the new CPI calculation is more accurate - the old calculation was over-estimating inflation and thus giving a creeping tax cut each year by expanding the brackets too fast. Eventually, there'd have to be a reset of the brackets, similar to a leap year, because the government would be losing too much money.

Even though this was the right thing to do and prevents the govt from eventually going bankrupt if unchanged, this allowed the critics who are normally for responsible government to tell the public (accurately) that their taxes will go up in 10 years. The CBO review of the tax cuts also explains this in their projections.
The effect of this change is sufficiently small (for example, the doubled estate tax exclusion amount is $11,180,000 rather than $11.2 million in 2018) that it will be far outweighed by whatever else Congress may do from time to time.
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retiredjg
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Re: Grabiner, what does this mean?

Post by retiredjg »

Thanks. I think I get it now. :happy
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Re: Grabiner, what does this mean?

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Re: Grabiner, what does this mean?

Post by AlphaLess »

libralibra wrote: Sun Sep 23, 2018 1:07 pm
bsteiner wrote: Sun Sep 23, 2018 12:41 pm The effect of this change is sufficiently small (for example, the doubled estate tax exclusion amount is $11,180,000 rather than $11.2 million in 2018) that it will be far outweighed by whatever else Congress may do from time to time.
A billion here, a billion there, pretty soon, you're talking real money. :mrgreen:
Well, to billionaires, a billion dollar tax cut is nothing.
But a billion dollar tax increase is a BIG deal.
Go figure.
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by LadyGeek »

I mreged retiredjg's question back into the original thread.
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Re: Allocating 1/3 of Investable Assets to Roth Accounts

Post by MrBeaver »

elgob.bogle wrote: Sat Sep 22, 2018 11:53 pm MrBeaver et al:

FWIW, the new 2018 tax brackets are scheduled to phase out in 2025 and apparently revert back to 2017 levels. Couldn't quickly locate a great reference, but the reversion is mentioned here: https://obliviousinvestor.com/2018-tax-brackets/

Accordingly, DW will be loading up her ROTH account during 2020-2024 after she retires & and can access her tIRA account from work. She plans to convert as much as possible in the 22% bracket before it zooms back up.

elgob
Certainly as one gets more near retirement, it becomes easier to plan. And for many, conversions in the 22% bracket make a whole lot of sense.

I wasn’t trying to suggest that Roth should be preferred over traditional only if one is within the 12% bracket. Rather, that’s true for me and my family. If we were above the 12% bracket (MFJ), we would simply give more and enjoy that. Our spending is roughly 45% of the 12% bracket limit, and so is our savings. If we become FI with our portfolio size, I could see us continuing to work and increasing spending some, but certainly not more than 2x of our current spending (which would put us at the top of the 12% bracket with less being saved since we would be FI). I’d rather just give more away, in which case we would still be in the 12% bracket.
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