Are Roth IRAs “Pay taxes once and never again” really best?”

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T-Wrench
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by T-Wrench »

I may have missed this in the discussion, but for the OP:

You mentioned initially that you were self-employed and opened up a solo 401k. As others have noted, we don't know what your income is or your assets to understand the nuances of your situation. That said, if you qualify for the 20% Qualified Business Income Deduction https://www.irs.gov/newsroom/qualified- ... -deduction, then your question may be a non-issue. I'll have to dig into a few weeds, bear with me:

You can only contribute to the Roth using employee contributions; all employer contributions must be Traditional (pre-tax). Your employee contributions are limited to $19,500 per individual this year.

Taking Celia's remark that your income must be above $200k to be phased out of Roth IRA contributions, if your business income is below $326,600 this year (phase-out income limit for Married Filing Jointly), then you could take the full 20% deduction (of $200k, that 20% is $40k) and contribute all of that to the max for the employee contribution with the logic that 0% federal income tax on that income is lower than the amount you're paying now and lower than what you'd pay in retirement, which is greater than 0 (if you live in a high-tax state, that changes the math). The rest of your contributions, the employer contributions, have to be Traditional anyway and, as other posters have pointed out, should save you money on the difference in tax rates between now and when you take the money out.

Just my $.02.
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by Chadnudj »

I won't get into all the detailed analysis of Traditional vs. Roth 401k.

What I will say is that you're maxing out your Roth 401k now, with apparently little problem doing so.

So, if you shifted to a Traditional 401k and maxed that out instead, you would suddenly see a rather appreciable increase in your take home pay every month.

If you take that difference/increase in take home pay and just automatically contribute it towards (a) a backdoor Roth IRA (if you can logistically position yourself to do so), and after that's filled up (b) a taxable account, you'll be in excellent shape.

You'll have lowered your taxes now (deferred them until later when you can plan strategically for them), and potentially tax diversified across three different accounts (Roth post-tax, Traditional pre-tax, and taxable) that will give you even more flexibility when it comes time to make withdrawal decisions to do so efficiently.

You've already done the hard work of figuring out how to meet your current needs while maxing out a Roth 401k...so it should be easy to take the takehome pay increase when you shift to Traditional and just save all that more or less automatically.
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by LadyGeek »

In the previous page, I removed a contentious off-topic comment (which could have been phrased better) and several posts. See: General Etiquette
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by dharrythomas »

I love the Roth option. I moved as much as I could to Roth contributions, as soon as I could, first IRA contributions then TSP. I like knowing how much of the account is mine. Even with everything I did, I’ve still got almost 1/3 in Traditional accounts. That’s the way it works when you started in the 1980s in my 20s. It is probably not the optimal move, but it also allows me to save a little more without fighting with DW. I’ve got two pensions that will fill most of the lower tax rates before counting SS, so if I want to get into Roth, now is about as good a time as any. Of course, I’m one of those folks that paid off the house. In an uncertain world, where we bought our house in a short sale from someone who has to make more than I was at the time (or now for that matter), I like having a paid off home. I also like knowing that if we need cash, for whatever reason, we don’t have to sell a taxable investment and pay CG taxes.

Since we’ve been blessed far more than we expected or deserved, and once the smoke cleared, we’ve got enough, one question I ask is about what I want to pass on. If you won’t spend it during your lifetime, the rank of accounts is: Roth, Taxable, Traditional. Traditional is only best for charitable contributions.

Frankly, if you’re arguing about Roth vs Traditional, you’ve already made the big decision right (live below your means and invest) and you’ll be OK if you follow the low cost investing mantra. Maybe not optimal, but the difference is not going to destroy your retirement.
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by 02nz »

dharrythomas wrote: Mon Jul 13, 2020 9:20 pm I like knowing how much of the account is mine.
That certainty has a cost. I like being able to time it so as to minimize the cost, and that generally means contributing more to traditional and converting when the timing is right (i.e., when my tax rates are lower). Here's a current thread of someone who's apparently having second thoughts about Roth but can't undo the past: viewtopic.php?f=1&t=320159. The flip side of certainty is a lack of flexibility.
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by willthrill81 »

02nz wrote: Tue Jul 14, 2020 10:28 am
dharrythomas wrote: Mon Jul 13, 2020 9:20 pm I like knowing how much of the account is mine.
That certainty has a cost.
Correct, and that cost can be significant. Under current tax law, prioritizing Roth contributions over tax-deferred in our situation could easily cost us several hundred thousand dollars in additional taxes over our lifetimes.
02nz wrote: Tue Jul 14, 2020 10:28 amThe flip side of certainty is a lack of flexibility.
While 'pay taxes once and never again' feels good and does reduce one's uncertainty, let's not act as though there is no uncertainty with this approach. Many who favor that approach are afraid of tax laws being changed so as to increase tax rates, but let's not act as though it's impossible for the law to be changed to allow Roth withdrawals to be taxed. I don't personally view that as likely to occur, but I also don't think that marginal tax rates are going to suddenly go up significantly.

Also, tax-deferred balances can be converted to Roth whenever you wish. But Roth assets cannot be converted to tax-deferred (excluding re-characterizations).
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02nz
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by 02nz »

willthrill81 wrote: Tue Jul 14, 2020 10:40 am While 'pay taxes once and never again' feels good and does reduce one's uncertainty, let's not act as though there is no uncertainty with this approach. Many who favor that approach are afraid of tax laws being changed so as to increase tax rates, but let's not act as though it's impossible for the law to be changed to allow Roth withdrawals to be taxed. I don't personally view that as likely to occur, but I also don't think that marginal tax rates are going to suddenly go up significantly.

Also, tax-deferred balances can be converted to Roth whenever you wish. But Roth assets cannot be converted to tax-deferred (excluding re-characterizations).
Yep, people talk about Roth being less "risky" because it eliminates one risk (that of facing higher income tax rates in retirement than in working years), but as with talking about "are stocks riskier than fixed income" there's more than one kind of risk. When considering risk more broadly (e.g., stock market returns being lower than anticipated, disability, even divorce), tilting toward traditional is actually much less risky for most people. (Again, at least until they accumulate tax-deferred balances that most people won't ever see.)
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by Hydromod »

The one thing that swings it to maximal Roth contributions for me even within a decade of retirement is that there is a certainty of increased taxes if one spouse dies because of RMDs. I calculated the probability distribution of mortality for both of us, and in my case the expected value is 10 years with a single survivor. If we both died in the same car accident, traditional would have worked out marginally better than Roth.

So it became a fairly obvious hedge in our specific situation starting last year, where we both had a large traditional and negligible Roth, have a 403(b) Roth option available, and can max out contributions. Our situation is not always the case though.
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by rustymutt »

Has worked out wonderful for me. Retire, age 64, no debt, and monthly income more than enough to survive on. That IRA just sits and waits til critical money is needed. And it just grows, that pool of money with no tax owed on it. Win win.
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by SpideyIndexer »

02nz wrote: Tue Jul 14, 2020 10:49 am
willthrill81 wrote: Tue Jul 14, 2020 10:40 am While 'pay taxes once and never again' feels good and does reduce one's uncertainty, let's not act as though there is no uncertainty with this approach. Many who favor that approach are afraid of tax laws being changed so as to increase tax rates, but let's not act as though it's impossible for the law to be changed to allow Roth withdrawals to be taxed. I don't personally view that as likely to occur, but I also don't think that marginal tax rates are going to suddenly go up significantly.

Also, tax-deferred balances can be converted to Roth whenever you wish. But Roth assets cannot be converted to tax-deferred (excluding re-characterizations).
Yep, people talk about Roth being less "risky" because it eliminates one risk (that of facing higher income tax rates in retirement than in working years), but as with talking about "are stocks riskier than fixed income" there's more than one kind of risk. When considering risk more broadly (e.g., stock market returns being lower than anticipated, disability, even divorce), tilting toward traditional is actually much less risky for most people. (Again, at least until they accumulate tax-deferred balances that most people won't ever see.)
I don't understand how stock market return affects the risk level of a Roth. While many people fill their Roth space with equity holdings, this is not necessary.

Regarding potential tax law changes, one needs to consider ordinary income tax rates, dividend and capital gains tax rates, NIIT and perhaps other new and creative taxes. Since it is not permitted in this forum, I won't waste time and space hypothesizing these, but definitely a Roth allows hedging of tax rate increases of any sort.
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by 02nz »

SpideyIndexer wrote: Tue Jul 14, 2020 2:53 pm
02nz wrote: Tue Jul 14, 2020 10:49 am
willthrill81 wrote: Tue Jul 14, 2020 10:40 am While 'pay taxes once and never again' feels good and does reduce one's uncertainty, let's not act as though there is no uncertainty with this approach. Many who favor that approach are afraid of tax laws being changed so as to increase tax rates, but let's not act as though it's impossible for the law to be changed to allow Roth withdrawals to be taxed. I don't personally view that as likely to occur, but I also don't think that marginal tax rates are going to suddenly go up significantly.

Also, tax-deferred balances can be converted to Roth whenever you wish. But Roth assets cannot be converted to tax-deferred (excluding re-characterizations).
Yep, people talk about Roth being less "risky" because it eliminates one risk (that of facing higher income tax rates in retirement than in working years), but as with talking about "are stocks riskier than fixed income" there's more than one kind of risk. When considering risk more broadly (e.g., stock market returns being lower than anticipated, disability, even divorce), tilting toward traditional is actually much less risky for most people. (Again, at least until they accumulate tax-deferred balances that most people won't ever see.)
I don't understand how stock market return affects the risk level of a Roth. While many people fill their Roth space with equity holdings, this is not necessary.

Regarding potential tax law changes, one needs to consider ordinary income tax rates, dividend and capital gains tax rates, NIIT and perhaps other new and creative taxes. Since it is not permitted in this forum, I won't waste time and space hypothesizing these, but definitely a Roth allows hedging of tax rate increases of any sort.
(Emphasis mine) Ha, a good example of what I talked about in my earlier post about different kinds of risk. I wasn't talking about asset allocation or location.

I can't count how many times I've seen posters say something like, "I project I'll be in a higher tax bracket in retirement than now" but when you break down the math, it's often wildly optimistic about retirement portfolio size/income. They often use nominal returns instead of real, even though income tax brackets are indexed for inflation, so they get too high a projection for tax rates on their traditional balance. They assume the next 10, 20 years will look like the last 10 (10%+ annual returns!), even though valuations are far higher today than a decade ago. They assume they'll work every year and income will go up and up, and they'll never have a disability, divorce (a chunk of the IRA is often awarded to the spouse), large medical expenses, job loss, career change, bankrupt pensions, or other kinds of "speed bumps" of life that can result in lower than projected portfolio size (and thus income in retirement). That's why, until you already have a large tax-deferred balance or are certainty about being on track, tilting toward traditional (not necessarily 100% traditional - for many maxing a traditional 401k and Roth IRA is a good combo) helps mitigate these risks.

We had a whole thread about this: viewtopic.php?f=10&t=318512

As for tax rates, without going into speculation, I tend to agree that large deficits and debts put upward pressure on tax rates. But tax rates have to go up massively to make it favorable for someone, say, who is in the 32% tax bracket and only has $100K in a traditional 401k, to contribute to a Roth 401k instead of traditional.
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by Vikingfan »

YES. You certainly won’t regret not paying taxes 30 years from now when the rates are 80%😊
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by 02nz »

Vikingfan wrote: Tue Jul 14, 2020 3:48 pm YES. You certainly won’t regret not paying taxes 30 years from now when the rates are 80%😊
What crystal ball tells you that the tax rates will be 80% 30 years from now? We haven't seen rates like those (even for top marginal rates) since John F. Kennedy was President, so I'm curious to hear your analysis - unless, perhaps, you're just pulling numbers out of some place. :P
Last edited by 02nz on Tue Jul 14, 2020 6:56 pm, edited 3 times in total.
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by catdoctor »

RMD's and/or withdrawals from a traditional IRA may increase medicare premiums. No such problem with a Roth.
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by 02nz »

catdoctor wrote: Tue Jul 14, 2020 4:07 pm RMD's and/or withdrawals from a traditional IRA may increase medicare premiums. No such problem with a Roth.
Like "tax bombs" and "tax torpedoes," these fears of IRMAA are often quite exaggerated, maybe by the tax man who would rather get his revenues now (Roth) than later (traditional). :wink:

IRMAA starts above $87.4K of income for single filers and double that for MFJ. If you have no other income and assume a 4% withdrawal rate, it takes over a $4M traditional portfolio - in today's dollars - to produce distributions that would increase your Medicare premium. Even then, you're talking about an extra $1400/year for a couple.
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by willthrill81 »

02nz wrote: Tue Jul 14, 2020 3:55 pm
Vikingfan wrote: Tue Jul 14, 2020 3:48 pm YES. You certainly won’t regret not paying taxes 30 years from now when the rates are 80%😊
What crystal ball tells you that the tax rates will be 80% 30 years from now? We haven't seen rates like those (even for top marginal rates) since John F. Kennedy was President, so I'm curious to hear your analysis.
In 1962, a MFJ couple had to have taxable income, adjusted for inflation, of about $1.2 million to hit the 81% federal tax bracket.

And while the tax rates were significantly higher way back then, there were a lot more deductions available too. IIRC, until sometime in the early 1980s, all interest was deductible.

I find it highly amusing that some appear to think that tax rates could more than double from where they are now but they are completely sure that Roth withdrawals would somehow escape all taxation. :D
02nz wrote: Tue Jul 14, 2020 4:12 pm
catdoctor wrote: Tue Jul 14, 2020 4:07 pm RMD's and/or withdrawals from a traditional IRA may increase medicare premiums. No such problem with a Roth.
Like "tax bombs" and "tax torpedoes," these fears of IRMAA are often quite exaggerated, maybe by the tax man who would rather get his revenues now (Roth) than later (traditional). :wink:

IRMAA starts above $87.4K of income for single filers and double that for MFJ. If you have no other income and assume a 4% withdrawal rate, it takes over a $4M traditional portfolio - in today's dollars - to produce distributions that would increase your Medicare premium. Even then, you're talking about an extra $1400/year for a couple.
I just don't understand why RMDs are so often thought to be a bugaboo. The only situations where I've seen them create a 'problem' is when the retiree 'over-saved' significantly and/or had a sizable pension that filled up the lower tax brackets.
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by 02nz »

willthrill81 wrote: Tue Jul 14, 2020 4:37 pm I just don't understand why RMDs are so often thought to be a bugaboo. The only situations where I've seen them create a 'problem' is when the retiree 'over-saved' significantly and/or had a sizable pension that filled up the lower tax brackets.
I get that, for some people who already retired or retiring now, who were only able to contribute to tax-deferred for most/all of their working lives, who maybe also have a pension, RMDs can in some cases (probably still a tiny minority of the general population) push them up to a higher tax bracket than in their working years. But this is definitely less of an issue for those in their working years now, as 1) people have had expanded ability to contribute to Roth accounts; 2) pensions have become rarer and smaller; 3) more people retire early/earlier/early-ish, spurred by the FIRE "movement" and greater affordability of health insurance, meaning more years of low- or no-income-tax space to fill with withdrawals/Roth conversions. Between those factors and a bit of planning, RMDs need not be scary at all.
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by marklar13 »

BogleBuddy12 wrote: Sat Jul 11, 2020 7:19 am My wife and I recently became relatively high earners (self-employed.) We no longer qualified for Roth IRAs. So we opened Roth Individual 401(k) accounts at Vanguard and that has been our new vehicle of choice.
Thank you.
I skimmed through the posts, but didn't see anyone mention the potential QBI deduction impact. If this is self-employment income, do you qualify for the QBI deduction? If so, then keep in mind that pre-tax contributions for your solo 401k will reduce your QBI deduction. On the other hand, if you are over the limit, maybe you need those pre-tax deductions to bring your income back into range to qualify for the deduction. There is still no clear cut answer, but if you aren't way over the limit, then this is probably something you should be considering.

Good articles on this issue:
* https://www.kitces.com/199a-qbi-deducti ... ions-roth/
* https://www.whitecoatinvestor.com/secti ... -accounts/
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by FiveK »

marklar13 wrote: Tue Jul 14, 2020 6:36 pm I skimmed through the posts, but didn't see anyone mention the potential QBI deduction impact. If this is self-employment income, do you qualify for the QBI deduction? If so, then keep in mind that pre-tax contributions for your solo 401k will reduce your QBI deduction. On the other hand, if you are over the limit, maybe you need those pre-tax deductions to bring your income back into range to qualify for the deduction. There is still no clear cut answer, but if you aren't way over the limit, then this is probably something you should be considering.
Good point. Charting one's marginal tax rate over practical ranges of income, deductions, etc., can be illuminating.
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by willthrill81 »

02nz wrote: Tue Jul 14, 2020 6:14 pm
willthrill81 wrote: Tue Jul 14, 2020 4:37 pm I just don't understand why RMDs are so often thought to be a bugaboo. The only situations where I've seen them create a 'problem' is when the retiree 'over-saved' significantly and/or had a sizable pension that filled up the lower tax brackets.
I get that, for some people who already retired or retiring now, who were only able to contribute to tax-deferred for most/all of their working lives, who maybe also have a pension, RMDs can in some cases (probably still a tiny minority of the general population) push them up to a higher tax bracket than in their working years. But this is definitely less of an issue for those in their working years now, as 1) people have had expanded ability to contribute to Roth accounts; 2) pensions have become rarer and smaller; 3) more people retire early/earlier/early-ish, spurred by the FIRE "movement" and greater affordability of health insurance, meaning more years of low- or no-income-tax space to fill with withdrawals/Roth conversions. Between those factors and a bit of planning, RMDs need not be scary at all.
Yes, I definitely agree that there are ways to deal with RMDs to reduce or eliminate problems before they crop up in the few situations where they the problem is legitimate.

And, of course, it should also be mentioned that having real problems with RMDs is darn near the top of the pyramid of first-world problems! :D
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by You Know What I Mean »

dodecahedron wrote: Sun Jul 12, 2020 10:33 am
You Know What I Mean wrote: Sat Jul 11, 2020 6:33 pm
dodecahedron wrote: Sat Jul 11, 2020 11:56 am
nisiprius wrote: Sat Jul 11, 2020 8:02 am But the title itself is revealing: "IRAs, 401(k)s & Other Retirement Plans: Taking Your Money Out." IRAs and 401(k)s are the ones you need the book for).

And you can aggregate accounts of a particular type, e.g., 401(k), for the purposes of computing and distributing your RMD. So, for example, if you have a 401(k) with an RMD of $7K at IBM and a 401(k) with an RMD of $2K at GE, you just can satisfy your RMD with a single $9K distribution from either one or any combination of those two 401(k) plans. But you cannot mix and match across plan types.

Are you sure about that? I thought you could aggregate IRA's and 403b's, but not 401k's or 457b's.

https://www.irs.gov/retirement-plans/re ... ibutions#5

"Can an account owner just take a RMD from one account instead of separately from each account?
"An IRA owner must calculate the RMD separately for each IRA that he or she owns, but can withdraw the total amount from one or more of the IRAs. Similarly, a 403(b) contract owner must calculate the RMD separately for each 403(b) contract that he or she owns, but can take the total amount from one or more of the 403(b) contracts.

"However, RMDs required from other types of retirement plans, such as 401(k) and 457(b) plans have to be taken separately from each of those plan accounts."
You are absolutely right. Thanks for pointing this out. Brain glitch on my part, partly attributable to the fact I have simplified to the point where I have have no more than one of any type of account subject to RMDs, except for multiple 403(b)s, so I had forgotten that the other types of 400 series accounts can´t be aggregated. I will edit my previous post.
Thanks for closing the loop. I was hoping it was something like that. I'm glad you hadn't missed missed any RMDs from multiple 401k's.

I share your thinking on consolidating accounts for simplification. We've done a lot of that, but I still have a Thrift Savings Pan account and a 401k account at Fidelity that I haven't rolled over to my traditional IRA at Vanguard. I've thought about it, but I want to keep the TSP for access to the G Fund. And the 401k at Fidelity has a Stable-Value Fund that has a much higher interest rate than the G Fund. So anyway, I need to remember to take RMDs from all of them.
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by dharrythomas »

02nz wrote: Tue Jul 14, 2020 10:28 am
dharrythomas wrote: Mon Jul 13, 2020 9:20 pm I like knowing how much of the account is mine.
That certainty has a cost. I like being able to time it so as to minimize the cost, and that generally means contributing more to traditional and converting when the timing is right (i.e., when my tax rates are lower). Here's a current thread of someone who's apparently having second thoughts about Roth but can't undo the past: viewtopic.php?f=1&t=320159. The flip side of certainty is a lack of flexibility.
I’ll have two pensions coming in, one at 59 and 3 months, and the other at anticipated retirement at 62 or so. I don’t anticipate a much lower tax bracket. I started putting money in IRAs at 22, the year I graduated from college. We contributed every year until the Roth came along. That plus traditional 401(k) and TSP contributions leave me with more in that type of account than I anticipate needing. Plus, we’ve paid off the house. We’ve been blessed.

I just assume that in hindsight, whatever I decide (about anything)will be wrong (Suboptimal), but you’ve got to decide anyway..

There is no guarantee that you’ll be in a lower tax bracket, you only know the results after the fact.
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by willthrill81 »

dharrythomas wrote: Sat Jul 18, 2020 4:09 pm
02nz wrote: Tue Jul 14, 2020 10:28 am
dharrythomas wrote: Mon Jul 13, 2020 9:20 pm I like knowing how much of the account is mine.
That certainty has a cost. I like being able to time it so as to minimize the cost, and that generally means contributing more to traditional and converting when the timing is right (i.e., when my tax rates are lower). Here's a current thread of someone who's apparently having second thoughts about Roth but can't undo the past: viewtopic.php?f=1&t=320159. The flip side of certainty is a lack of flexibility.
I’ll have two pensions coming in, one at 59 and 3 months, and the other at anticipated retirement at 62 or so. I don’t anticipate a much lower tax bracket. I started putting money in IRAs at 22, the year I graduated from college. We contributed every year until the Roth came along. That plus traditional 401(k) and TSP contributions leave me with more in that type of account than I anticipate needing. Plus, we’ve paid off the house. We’ve been blessed.

I just assume that in hindsight, whatever I decide (about anything)will be wrong (Suboptimal), but you’ve got to decide anyway..

There is no guarantee that you’ll be in a lower tax bracket, you only know the results after the fact.
Those with pensions, especially multiple pensions, are much more likely to benefit from Roth contributions than are those without them.
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by MathIsMyWayr »

willthrill81 wrote: Sat Jul 18, 2020 4:28 pm
dharrythomas wrote: Sat Jul 18, 2020 4:09 pm
02nz wrote: Tue Jul 14, 2020 10:28 am
dharrythomas wrote: Mon Jul 13, 2020 9:20 pm I like knowing how much of the account is mine.
That certainty has a cost. I like being able to time it so as to minimize the cost, and that generally means contributing more to traditional and converting when the timing is right (i.e., when my tax rates are lower). Here's a current thread of someone who's apparently having second thoughts about Roth but can't undo the past: viewtopic.php?f=1&t=320159. The flip side of certainty is a lack of flexibility.
I’ll have two pensions coming in, one at 59 and 3 months, and the other at anticipated retirement at 62 or so. I don’t anticipate a much lower tax bracket. I started putting money in IRAs at 22, the year I graduated from college. We contributed every year until the Roth came along. That plus traditional 401(k) and TSP contributions leave me with more in that type of account than I anticipate needing. Plus, we’ve paid off the house. We’ve been blessed.

I just assume that in hindsight, whatever I decide (about anything)will be wrong (Suboptimal), but you’ve got to decide anyway..

There is no guarantee that you’ll be in a lower tax bracket, you only know the results after the fact.
Those with pensions, especially multiple pensions, are much more likely to benefit from Roth contributions than are those without them.
The irony, not necessarily ugly:
By the time when you realize that you are doing better than feared, it is too late to switch over to Roth contributions because you are in the later stage of your career earning peak wages with your tax brackets higher than after retired.
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willthrill81
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by willthrill81 »

MathIsMyWayr wrote: Sat Jul 18, 2020 4:40 pm
willthrill81 wrote: Sat Jul 18, 2020 4:28 pm
dharrythomas wrote: Sat Jul 18, 2020 4:09 pm
02nz wrote: Tue Jul 14, 2020 10:28 am
dharrythomas wrote: Mon Jul 13, 2020 9:20 pm I like knowing how much of the account is mine.
That certainty has a cost. I like being able to time it so as to minimize the cost, and that generally means contributing more to traditional and converting when the timing is right (i.e., when my tax rates are lower). Here's a current thread of someone who's apparently having second thoughts about Roth but can't undo the past: viewtopic.php?f=1&t=320159. The flip side of certainty is a lack of flexibility.
I’ll have two pensions coming in, one at 59 and 3 months, and the other at anticipated retirement at 62 or so. I don’t anticipate a much lower tax bracket. I started putting money in IRAs at 22, the year I graduated from college. We contributed every year until the Roth came along. That plus traditional 401(k) and TSP contributions leave me with more in that type of account than I anticipate needing. Plus, we’ve paid off the house. We’ve been blessed.

I just assume that in hindsight, whatever I decide (about anything)will be wrong (Suboptimal), but you’ve got to decide anyway..

There is no guarantee that you’ll be in a lower tax bracket, you only know the results after the fact.
Those with pensions, especially multiple pensions, are much more likely to benefit from Roth contributions than are those without them.
The irony, not necessarily ugly:
By the time when you realize that you are doing better than feared, it is too late to switch over to Roth contributions because you are in the later stage of your career earning peak wages with your tax brackets higher than after retired.
"Darn it! Why do I have to have such a high income in retirement!" :twisted:
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
TropikThunder
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by TropikThunder »

MathIsMyWayr wrote: Sat Jul 18, 2020 4:40 pm
willthrill81 wrote: Sat Jul 18, 2020 4:28 pm Those with pensions, especially multiple pensions, are much more likely to benefit from Roth contributions than are those without them.
The irony, not necessarily ugly:
By the time when you realize that you are doing better than feared, it is too late to switch over to Roth contributions because you are in the later stage of your career earning peak wages with your tax brackets higher than after retired.
Yeah, by then it's obvious you should have done Roth in your earlier years but you really couldn't have know that at the time.
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Toons
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by Toons »

I must say there is something comforting tax wise when
My spouse and I want to take dividends from
Wellesley Income(VWIAX) in cash from our Roth Ira's


:happy :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
02nz
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by 02nz »

Toons wrote: Sat Jul 18, 2020 4:53 pm I must say there is something comforting tax wise when
My spouse and I want to take dividends from
Wellesley Income(VWIAX) in cash from our Roth Ira's


:happy :happy
There's something easy about it, for sure. However, if let's say you're a married couple who don't even have enough income to fill your standard deduction because you only have Roth accounts, then you way overpaid taxes.
MathIsMyWayr
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by MathIsMyWayr »

willthrill81 wrote: Sat Jul 18, 2020 4:47 pm
MathIsMyWayr wrote: Sat Jul 18, 2020 4:40 pm
willthrill81 wrote: Sat Jul 18, 2020 4:28 pm
dharrythomas wrote: Sat Jul 18, 2020 4:09 pm
02nz wrote: Tue Jul 14, 2020 10:28 am

That certainty has a cost. I like being able to time it so as to minimize the cost, and that generally means contributing more to traditional and converting when the timing is right (i.e., when my tax rates are lower). Here's a current thread of someone who's apparently having second thoughts about Roth but can't undo the past: viewtopic.php?f=1&t=320159. The flip side of certainty is a lack of flexibility.
I’ll have two pensions coming in, one at 59 and 3 months, and the other at anticipated retirement at 62 or so. I don’t anticipate a much lower tax bracket. I started putting money in IRAs at 22, the year I graduated from college. We contributed every year until the Roth came along. That plus traditional 401(k) and TSP contributions leave me with more in that type of account than I anticipate needing. Plus, we’ve paid off the house. We’ve been blessed.

I just assume that in hindsight, whatever I decide (about anything)will be wrong (Suboptimal), but you’ve got to decide anyway..

There is no guarantee that you’ll be in a lower tax bracket, you only know the results after the fact.
Those with pensions, especially multiple pensions, are much more likely to benefit from Roth contributions than are those without them.
The irony, not necessarily ugly:
By the time when you realize that you are doing better than feared, it is too late to switch over to Roth contributions because you are in the later stage of your career earning peak wages with your tax brackets higher than after retired.
"Darn it! Why do I have to have such a high income in retirement!" :twisted:
"Darn it! Pensions, SS's,and RMDs still put me or us below the top tax bracket!" :twisted:
Last edited by MathIsMyWayr on Sat Jul 18, 2020 5:36 pm, edited 1 time in total.
02nz
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by 02nz »

willthrill81 wrote: Sat Jul 18, 2020 4:47 pm
MathIsMyWayr wrote: Sat Jul 18, 2020 4:40 pm
willthrill81 wrote: Sat Jul 18, 2020 4:28 pm
dharrythomas wrote: Sat Jul 18, 2020 4:09 pm
02nz wrote: Tue Jul 14, 2020 10:28 am

That certainty has a cost. I like being able to time it so as to minimize the cost, and that generally means contributing more to traditional and converting when the timing is right (i.e., when my tax rates are lower). Here's a current thread of someone who's apparently having second thoughts about Roth but can't undo the past: viewtopic.php?f=1&t=320159. The flip side of certainty is a lack of flexibility.
I’ll have two pensions coming in, one at 59 and 3 months, and the other at anticipated retirement at 62 or so. I don’t anticipate a much lower tax bracket. I started putting money in IRAs at 22, the year I graduated from college. We contributed every year until the Roth came along. That plus traditional 401(k) and TSP contributions leave me with more in that type of account than I anticipate needing. Plus, we’ve paid off the house. We’ve been blessed.

I just assume that in hindsight, whatever I decide (about anything)will be wrong (Suboptimal), but you’ve got to decide anyway..

There is no guarantee that you’ll be in a lower tax bracket, you only know the results after the fact.
Those with pensions, especially multiple pensions, are much more likely to benefit from Roth contributions than are those without them.
The irony, not necessarily ugly:
By the time when you realize that you are doing better than feared, it is too late to switch over to Roth contributions because you are in the later stage of your career earning peak wages with your tax brackets higher than after retired.
"Darn it! Why do I have to have such a high income in retirement!" :twisted:
This goes to the "asymmetric risk" aspect - if your mistake is "too much traditional," that's a nice problem to have. The opposite is not a nice problem to have.

It is true that growth of one's income as career advances often is not optimal in the sense that more often than not one's highest tax rates come later in one's career, when switching to Roth is costlier. However, there can still be opportunities to do Roth contributions at lower tax rates, for example if one spouse stays at home, or one has to retire earlier than anticipated. Here's one example that came up today of someone who arrived at 55 with what might be thought of as "too much" traditional, but who'll actually be much better off for it: viewtopic.php?p=5379138. Again, I think too many people overpay for Roth's "certainty" and fail to realize that they're also giving up flexibility in exchange.
Sasquatch1
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by Sasquatch1 »

[Political comments removed by admin LadyGeek]

When in doubt do 50/50 and keep options open.

I’ve changed my mind what’s best a few times, but as of now I feel roth is best. I’m a high earner in the 140-180k per year single filer.

If I just make the max 19500, for 20-30 years and get half decent growth my RMDs will be quite high not counting pension/ss.

I wouldn’t mind being convinced of the opposite though, I like reading these threads, make me view other options
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FiveK
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Re: Are Roth IRAs “Pay taxes once and never again” really best?”

Post by FiveK »

Sasquatch1 wrote: Sat Jul 18, 2020 7:01 pm If I just make the max 19500, for 20-30 years and get half decent growth my RMDs will be quite high not counting pension/ss.

I wouldn’t mind being convinced of the opposite though, I like reading these threads, make me view other options
If one thinks one will pay a higher marginal rate to withdraw than one would save by contributing to traditional now, then Roth is the logical choice now.

Time will then tell if one's thinking was correct.
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