Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by LadyGeek » Wed Jul 24, 2019 8:23 pm

FiveK wrote:
Wed Jul 24, 2019 6:19 pm
LadyGeek wrote:
Wed Jul 24, 2019 5:36 pm
I have updated the draft page with the version from 17:21, 17 June 2019 (by LadyGeek).*

Is this version ready to go "live"? See: User:Fyre4ce/Marginal tax rate
Might depend on who you ask ;). I vote aye.
Is User:Fyre4ce/Traditional versus Roth also ready to go "live"?
(This has been a long discussion with two related pages. I want to be sure on the status.)
No on the t vs. R page, as there were many changes made recently. But I think the draft marginal rate page fits both the current and draft t vs. R pages, so (if others concur) it could be moved live.
I agree and like it as well.

We're now live in the wiki with: Marginal tax rate

===================
For the wiki editors:

I updated the live page by copying the content from the draft page, so it's just another update to the "live" page.

The draft page content has been replaced with a "redirect", meaning that when you click on User:Fyre4ce/Marginal tax rate it automatically jumps to the live page. In this manner, none of the links in this thread will break.

To view the draft page directly, click on the link "(Redirected from User:Fyre4ce/Marginal tax rate)" which is just under the page title.

All of the change revisions in the draft page are preserved in the View history tab. The move to the "live" page is just another update to the draft page.

(FYI - This is how Wikipedia works, we use the same software.)
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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Wed Jul 24, 2019 8:38 pm

LadyGeek wrote:
Wed Jul 24, 2019 4:20 pm
I assume the discussion 3 posts up from here (FiveK) still needs to be worked out for User:Fyre4ce/Traditional versus Roth.
Yes, as do some other points.

Referencing https://www.bogleheads.org/w/index.php? ... ldid=66053, and using line numbers from the older version, below are reasons.

In many cases, those reasons are grounded in the advice from the main wiki page: "If you find yourself writing a reply to a forum question that's been discussed a number of times before, consider creating a wiki page with the answer. Then you and others can reply to subsequent questions on that topic with a link and a quote of your text."

Comments below are lengthy, but so were the changes.

If folks agree, I could do the legwork to incorporate specific changes into the 4-July version. Or, equivalently, revert other specific changes from the latest version. Perhaps LadyGeek could suggest which would be easier.

Line 2
  • Don't understand the addition of "in most cases." In what case does paying a higher tax rate leave one with more spendable after tax money?
  • The t vs. R article is long enough without including general investment considerations. Simply direct people to "Prioritizing investments" for those.
  • It's not practical to list all the permutations in the "General guidelines" section that any given individual might encounter. Keep it simple.
  • No real preference regarding the addition of an "Eligibility" section and the edits therein.
Line 31: Don't see any difference between the versions, so...?

Line 37
  • The change from the simple(st) case involving the commutative property, to what happens when the pre-tax amount one wants to use is greater than the contribution limit, is common enough that it should be toward the top of the article.
  • Don't care whether "Two" is part of the section title
  • Don't care about wordcrafting in the "50 year old who..." example, nor the difference between fraction and percentage.
  • Leaving "Comparing marginal rates between contribution (or conversion now) and withdrawal in the future is the most direct way to achieve this goal" as a separate paragraph seems better, as it makes the point more visible.
Line 61
  • The older version directs the reader to "see the forest" instead of going "tree by tree", and seeing the bigger picture seems preferable.
Line 69
  • Don't care about minor edits such as "...or similar"
  • Need to distinguish between pensions that start immediately vs. those that can be deferred in return for higher payments
  • Due to the unequal downsides of getting t vs. R "wrong" - having too much in traditional is a "first world" problem, while too much in Roth due to unexpected income shortfall can be more serious - advising people to use "conservative" return estimates is preferable to advising "realistic" return estimates.
  • The timing of SS benefits is important.
  • Just do it every year.
  • The usefulness of cautioning people about self-defeating predictions is discussed in another post.
  • Some of the "changes" between versions really aren't changes, just the wiki software losing track.
  • Using "no further traditional contributions" as a basis for estimating future tax rates is discussed in another post.
Line 100
  • Using "no further traditional contributions" as a basis for estimating future tax rates is discussed in another post.
  • We could simply delete the "qualitative considerations" section - as noted in the "Line 2" comments above, it's not practical to list all the permutations - but if we want to retain them, it seems better to put them towards the end.
Line 152
  • Maybe include the "risk of shortfall" wording where we make conservative assumptions about investment returns?
Line 168 Line 253, 308, 318, 345, 371, 420
  • All changes look good. Especially nice on the math work!
Line 427
  • When the personal finance world stops making the mistake of "saving marginal but paying effective" (e.g., see Roth versus Tax-Deferred: The Critical Concept of Filling the Brackets - The White Coat Investor - Investing & Personal Finance for Doctors from a month ago), then we can dip our toes into the "instead of marginal" waters.

    Until then, we should stay consistent with our use of "The main reason to prefer one type of account over the other is the comparison of marginal tax rates."

    Over glasses of our favorite beverages, and just among us posting here, we likely all agree on the distinction between "instantaneous marginal" vs. "average marginal" (insert effective or cumulative, etc., for average if desired). But to those thinking the IRS is giving a sweet deal on traditional withdrawals, a more forceful distinction is warranted.
  • Don't care about section titles Analysis/Method/Example/Analysis
Line 458, 468
  • All changes look good.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by LadyGeek » Wed Jul 24, 2019 9:16 pm

FiveK wrote:
Wed Jul 24, 2019 8:38 pm
If folks agree, I could do the legwork to incorporate specific changes into the 4-July version. Or, equivalently, revert other specific changes from the latest version. Perhaps LadyGeek could suggest which would be easier.
The wiki software knows you are editing an older version and assumes you want to make that the "master". Hitting the edit button in either column of Difference between revisions of "User:Fyre4ce/Traditional versus Roth" brings up a warning
Warning: You are editing an out-of-date revision of this page. If you save it, any changes made since this revision will be lost.
With the right intentions, this can be helpful. For here, I think the better approach is to click on the "edit" button for the July 4, 2019 version.

Then, copy the content into the Bogleheads:Sandbox. Make changes, undo, change again until you're done. You'll keep a complete history of the changes and can revert anything that goes awry. When you're happy that everything is the way you want, copy that text as a new edit in the drat page (replace what's there with the revised content).

I was using the sandbox earlier to test changes for a non-US investing page. I'm done, it's ready for the next editor. (If you accidentally delete the sandbox template, don't worry about it. I'll put it back when you're done.)
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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Wed Jul 24, 2019 10:53 pm

LadyGeek wrote:
Wed Jul 24, 2019 9:16 pm
...Then, copy the content into the Bogleheads:Sandbox. Make changes, undo, change again until you're done. You'll keep a complete history of the changes and can revert anything that goes awry. When you're happy that everything is the way you want, copy that text as a new edit in the drat page (replace what's there with the revised content)....
Looks good - maybe tomorrow.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by fyre4ce » Thu Jul 25, 2019 12:08 am

Can I ask we slow things down a bit? Rolling back the version of MTR un-did a whole batch of changes that I spent a lot of time making. I see some detailed comments and some of the items deserve a discussion, but others (like adding a federal tax bracket table) I think definitely improve the article (no one here has disagreed) and are now gone. MTR is not a big deal, the changes are much smaller and I can go through it again at some later time based on these comments. But TvsR is a bigger article with more extensive changes, so I'd prefer not to go live with a rolled back version, but rather work thorough any areas of disagreement and make sure we all agree with the published version more-or-less.

I have a busy day tomorrow but may be able to find time to address the comments.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Thu Jul 25, 2019 9:36 am

fyre4ce wrote:
Thu Jul 25, 2019 12:08 am
Can I ask we slow things down a bit? Rolling back the version of MTR un-did a whole batch of changes that I spent a lot of time making. I see some detailed comments and some of the items deserve a discussion, but others (like adding a federal tax bracket table) I think definitely improve the article (no one here has disagreed) and are now gone.
You may want to re-read viewtopic.php?p=4660163#p4660163, which included reasons not to replicate a federal tax table in that article.
MTR is not a big deal, the changes are much smaller and I can go through it again at some later time based on these comments. But TvsR is a bigger article with more extensive changes, so I'd prefer not to go live with a rolled back version, but rather work thorough any areas of disagreement and make sure we all agree with the published version more-or-less.

I have a busy day tomorrow but may be able to find time to address the comments.
The current live t vs. R article isn't bad, so leaving it there a while longer isn't a problem.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by fyre4ce » Tue Jul 30, 2019 11:44 pm

FiveK wrote:
Wed Jul 24, 2019 5:06 pm
There are other issues. Referencing https://www.bogleheads.org/w/index.php? ... ldid=65905, and using line numbers from the older version, here are reasons:
Line 1: Leave the "To emphasize the "change" calculation" clause, because the difference between marginal and (overall) effective remains an issue in many personal finance sites.
I think it's redundant, and it implies that we know the motivations behind why sources describe marginal rate a certain way, when we really can't. It's better to simply state the description.
FiveK wrote: Line 56: Already discussed. Leave as is.
I don't think it's necessary to bring in tax tables in the header. Many taxpayers don't use the tax tables, but the mere fact that tax due is rounded to the nearest dollar or all US taxpayers means that a single dollar marginal rate will never be "accurate" - it will either be 0% or 100% depending on whether it increases tax due by $0 or $1. I do, however, think it's worth mentioning that marginal rates should be calculated with at least $100 increment for a resolution of 1%, and a multiple of $50 when using the tax tables. This is useful for anyone calculating their marginal rate with tax software or by hand. I added an estimation section but this was removed in the rollback. Any other opinions on whether this would be useful to add?
FiveK wrote: Line 65: Leave the paragraph space for readability. Go ahead and change "Assuming that your marginal tax rate is equal to your tax bracket, calculated using your taxable income (Adjusted Gross Income minus deductions), is often correct." to "Assuming that your marginal tax rate is equal to your federal tax bracket is sometimes correct." if desired, but leaving as is also works. Delete either all additional text, or just delete "Most commonly, the term "marginal" denotes a "small" change. In the context of tax rates, "small" means a change in income small enough to capture only the local tax effects."

Line 78: Don't care whether "For visual learners," is retained or not. Delete the added paragraph.
Taxpayers across the income spectrum are affected by phase-outs, and most US taxpayers pay state income tax. I don't know the statistics but I'd bet only a small percentage of taxpayers have their marginal rate the same as their federal income bracket. It's a minor point but I think "often" is misleading in this context.

We established earlier that "small" is the most common definition for marginal, by looking at other sources. I still think this is an important concept, especially given the calculus section at the bottom of the article. I know are not fond of the "small" definition, but I specifically added a few sentences to cover cases when a small change might not be appropriate, along with a link to the source you cited. I'm surprised you want this content removed. Any other opinions?
FiveK wrote: Line 84: Delete added text. Just reference the existing federal tax section. The more those tables are reproduced, the more chance for error and at the very least requires more work to update each year. The calculus concept of a derivative is inappropriate for this context.
I don't agree that federal tax brackets shouldn't be mentioned. It's the largest component of marginal rate. I understand the concern about duplicating information, although this has to be balanced with the desire to present readers with useful information. There are plenty of other examples of duplicated information (eg. IRA income limit). At the very least, do you think would be worth mentioning the range of tax rates? It seems odd to me to start off with state income tax and skip federal entirely.

I also noticed there's not an article about federal income tax specifically. There is the progressive tax article, but that's more about the concept of a bracket structure and how it works than the basics of federal income tax. Maybe at some future time I'll write a federal income tax summary and see what people think, that would be the natural article to link too here. This editing process has taken longer than I expected and is making me hesitate to take on future editing projects, but we'll see. (The taxable account article went considerably better). In any case, in the absence of a dedicated article about federal tax, marginal rate seems to be one of the best, if not the best, place to talk about federal tax rates, no?
FiveK wrote: In short, going live with LadyGeek's revision as of 21:21, 17 June 2019 seems fine.
I'm a relative newcomer to this forum, but I did spearhead this revision and invest a ton of time into trying to make it better, including the last round of scrubbing. Maybe it's just my lack of experience here, but it struck me as a bit brash to roll back all these changes and publish with minimal discussion. At least, we should have had a discussion like this one prior to the rollback. I'm not going to make any more edits to the published article prior to some more discussion here, but I'm interested to hear what other community members have to say.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by fyre4ce » Wed Jul 31, 2019 1:36 am

Comments on TvsR edits below.
FiveK wrote:
Wed Jul 24, 2019 8:38 pm
Line 2
Don't understand the addition of "in most cases." In what case does paying a higher tax rate leave one with more spendable after tax money?
There are potentially lots of reasons - different investment choices in the different T and R accounts, estate planning issues, maxing out accounts, etc. They're discussed in the article. I just think it's important to emphasize that while a marginal rate comparison is best in the simple case and a great first step in complicated cases, there are other factors that can swing things in the other direction.
FiveK wrote: The t vs. R article is long enough without including general investment considerations. Simply direct people to "Prioritizing investments" for those.
I agree that content shouldn't be duplicated without good reason, but the general investment considerations aren't specific to the TvsR decision, and the two non-tax considerations are high-yield enough that they definitely provide enough value to the reader to justify their space. Any other opinions? FWIW, those two bullets are from the existing article.
FiveK wrote: It's not practical to list all the permutations in the "General guidelines" section that any given individual might encounter. Keep it simple.
Agreed on the general idea of keeping it simple. If we could give all readers (advanced and novice) only one high-yield recommendation, it would have to be "traditional during peak earning years, Roth in low-income years". I'm flexible on removing some of the other ones, like estate tax, but at least that one bullet needs to appear somewhere near the top of the article. Do you disagree with me on this point, or are there other bullets (state tax, estate tax) you're not crazy about?

What was there before ("consider doing 100% traditional, or 50/50") is, I think, not very helpful. It doesn't suggest any criteria for choosing either of these options, so it's not very different from telling readers to flip a coin. I think it's better to give some simple rules of thumb that beginners or non-math oriented readers can use and still get close to the right answer.
FiveK wrote: No real preference regarding the addition of an "Eligibility" section and the edits therein.
Someone added some language in there during my LOA, and after reading it it seemed like a good addition. If we're going to discuss eligibility it should be segregated from the tax-based TvsR issues, in my opinion.
FiveK wrote: Line 31: Don't see any difference between the versions, so...?
Yea, not sure what happened there.
FiveK wrote: Line 37
  • The change from the simple(st) case involving the commutative property, to what happens when the pre-tax amount one wants to use is greater than the contribution limit, is common enough that it should be toward the top of the article.
I would agree with a mention/link, or possibly a brief summary, but are you saying you want to move the whole "maxing out retirement accounts" section more toward the top of the article? I don't think that's a good idea - from what I've seen in the forum, many people have enough trouble understanding the reasoning behind the simplest case. Moving that into this section would separate the marginal rate discussion with the two key sections on how to calculate current and future marginal rates.
FiveK wrote: Leaving "Comparing marginal rates between contribution (or conversion now) and withdrawal in the future is the most direct way to achieve this goal" as a separate paragraph seems better, as it makes the point more visible.
Yeah, but it's directly tied to the prior two sentences - the "this" as the second to last word would become loose. Maybe there's another good way to emphasize? Bold/italics/underline?
FiveK wrote: Line 61
The older version directs the reader to "see the forest" instead of going "tree by tree", and seeing the bigger picture seems preferable.
Sorry, not sure what you mean. I thought it would be helpful to list the bulletized methods. You don't like this change?
FiveK wrote: Line 69
Need to distinguish between pensions that start immediately vs. those that can be deferred in return for higher payments
Sure, but in either case the pension is going to start some time, and when it does the income needs to be accounted for. Royalty checks may get cut off at a certain point, but I'm not sure getting into the time phasing of these incomes is something we can do for readers here, they'll need to figure that out for themselves. Maybe we say, "Estimate any guaranteed retirement income, including pensions, royalties, and rental property and investment income, and the time-phasing of when this income will start and stop." ?
FiveK wrote: Due to the unequal downsides of getting t vs. R "wrong" - having too much in traditional is a "first world" problem, while too much in Roth due to unexpected income shortfall can be more serious - advising people to use "conservative" return estimates is preferable to advising "realistic" return estimates.
I've thought a lot about this, and I'm still not convinced Traditional provides much benefit in terms of safety. If we were recommending to readers how much of their income to save for a retirement goal, then yes, conservative estimates for investment return are clearly appropriate. And it's definitely true that in a shortfall scenario, a declining tax rate will help partially offset the shortfall, but it's a pretty small effect. I just ran some numbers, and I assumed a single retiree hoped to have $2.5M saved and fell short by 20% ($2.0M). His AVERAGE tax rate on a 4% withdrawal ($100,000) would have been 14.85%, but it's now only 13.01% on an $80,000 withdrawal, so his after-tax availability of his traditional account increased from 85.15% to 86.99%... only a 2% increase. So, he falls short on savings by 20% and only gets 2% of that back due to tax savings by going traditional... that seems like a small benefit to me. Future tax law changes could also easily wipe out this benefit.

There's an offsetting risk of Traditional, and that is if you are contributing anything like a fixed dollar amount, either to get a matching or maxing out, you have more spending money today due to the tax savings, and are thus actually saving less than with a Roth. If you don't have the discipline to save extra money, in or outside of your retirement accounts, then you'll have a shortfall, whereas if you go Roth, at least you "guarantee" the tax portion of your retirement savings, even if the investment side remains uncertain. Small issue admittedly, especially for our readers, but seems on par with the other one.

After thinking about this more, I think this "benefit" is small and tenuous enough to not get mentioned. What do you think? Am I missing something?
FiveK wrote: The timing of SS benefits is important.
Yes, definitely, although I think Roth conversions are better accounted for in the traditional line item than SS. How about adding something like, "...and the decision of when to begin receiving Social Security benefits." ?
FiveK wrote: Just do it every year.
Eh, call me lazy, but in my situation, living in a very high tax state and planning to retire to a tax-free state, if not move there much sooner, it's not worth crunching extra numbers every year. The answer is going to come out the same. Ditto for all those who are way ahead or behind on savings. I'm not hard-over on this though, we can say every year and those who are lazy like me can pare it down.
FiveK wrote: The usefulness of cautioning people about self-defeating predictions is discussed in another post.
I don't think "self-defeating" is the right word. The more you contribute to Traditional, the lower the marginal value of those contributions will be, because of rising future tax rates. Once future rates equal current rates, switch to Roth for further contributions. It's just a mathematical balance, but it's an overstatement to say that traditional contributions are self-defeating. In any case, this is still under the umbrella of the "simple case" where we assume constant marginal rates, so I don't think this effect should be emphasized here. The right place to discuss it is further down, in the "straddling brackets" section.
FiveK wrote: Using "no further traditional contributions" as a basis for estimating future tax rates is discussed in another post.
Yeah, and I don't think this is the correct strategy. The problem with assuming no future contributions is that if you check the math and it shows a lower future marginal rate, you're left wondering if you contributed all traditional whether your future rate would be equal or higher than today. But if you check assuming full planned future contributions and traditional comes out better, then you're confident that's the right answer. I suppose if your future rate were higher than current rate with no future contributions, then you'd be confident that Roth was the right answer, but that's a unlikely circumstance in a year with normal income. Far more likely, it seems, is someone who's behind on savings and/or retiring to a tax-free state, which is why I wrote the example out the way I did.
FiveK wrote: Line 100
  • Using "no further traditional contributions" as a basis for estimating future tax rates is discussed in another post.
  • We could simply delete the "qualitative considerations" section - as noted in the "Line 2" comments above, it's not practical to list all the permutations - but if we want to retain them, it seems better to put them towards the end.
See my comments above. Also, the example before I edited it involved partial Social Security taxation and had a marginal rate of 22.2% - I think that's too complex for the simplest example. I chose numbers that would guarantee that all SS income would be taxed at 85% to remove that from the equation. There's a big SS section further down that deals with that issue.
FiveK wrote: Line 152
  • Maybe include the "risk of shortfall" wording where we make conservative assumptions about investment returns?
See above analysis; I'm now in favor of removing this section completely.
FiveK wrote: Line 168
No problem with including that link.
At some point we might want to take some ideas from the Investment Order post and revise the Prioritizing investments article, but that's for another day. :)
Agreed that's a good reference, although I'm not sure I agree 100%. For instance, it has readers never pay off debts with less than 3% IR above the 10-year T-note. That seems really high to me; I'd definitely recommend readers pay off debts with lower IR than that. MAYBE hold onto a 1-2% nominal debt, but even that I would pay off myself for simplicity and cash flow. As you say, a discussing for another time.
FiveK wrote: Line 253, 308, 318, 345, 371, 420
  • All changes look good. Especially nice on the math work!
Thanks!
FiveK wrote: Line 427
  • When the personal finance world stops making the mistake of "saving marginal but paying effective" (e.g., see Roth versus Tax-Deferred: The Critical Concept of Filling the Brackets - The White Coat Investor - Investing & Personal Finance for Doctors from a month ago), then we can dip our toes into the "instead of marginal" waters.

    Until then, we should stay consistent with our use of "The main reason to prefer one type of account over the other is the comparison of marginal tax rates."

    Over glasses of our favorite beverages, and just among us posting here, we likely all agree on the distinction between "instantaneous marginal" vs. "average marginal" (insert effective or cumulative, etc., for average if desired). But to those thinking the IRS is giving a sweet deal on traditional withdrawals, a more forceful distinction is warranted.
:oops:

Reasons why this is good the way it is:
  • This is the wording we agreed to in a previous post.
  • The "marginal" and "cumulative" terms exactly match what's in the personal finance toolbox.
  • I scrupulously avoided the use of the term "average" to avoid confusion.
  • We mention that exact issue in the "common misconceptions" section.
  • WCI doesn't use the term "cumulative" in his post.
  • By the time someone is this far down in a long and technical article, the chances of them being confused by this phrasing are even lower.
  • If we deviate from this phrasing, then it raises the question of what call the "actual" marginal rate if we are using "marginal" for cumulative. I've never gotten a good answer to this question.

    We definitely should try to be clear to our readers, but changing definitions around from what are most commonly accepted is a bad way to do this - it creates more confusion than it fixes. The way it's written now is clear and consistent, both internally and with external sources.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by trueblueky » Wed Jul 31, 2019 10:33 am

fyre4ce wrote:
Tue Jul 30, 2019 11:44 pm
FiveK wrote:
Wed Jul 24, 2019 5:06 pm
There are other issues. Referencing https://www.bogleheads.org/w/index.php? ... ldid=65905, and using line numbers from the older version, here are reasons:
Line 1: Leave the "To emphasize the "change" calculation" clause, because the difference between marginal and (overall) effective remains an issue in many personal finance sites.
I think it's redundant, and it implies that we know the motivations behind why sources describe marginal rate a certain way, when we really can't. It's better to simply state the description.
FiveK wrote: Line 56: Already discussed. Leave as is.
I don't think it's necessary to bring in tax tables in the header. Many taxpayers don't use the tax tables, but the mere fact that tax due is rounded to the nearest dollar or all US taxpayers means that a single dollar marginal rate will never be "accurate" - it will either be 0% or 100% depending on whether it increases tax due by $0 or $1. I do, however, think it's worth mentioning that marginal rates should be calculated with at least $100 increment for a resolution of 1%, and a multiple of $50 when using the tax tables. This is useful for anyone calculating their marginal rate with tax software or by hand. I added an estimation section but this was removed in the rollback. Any other opinions on whether this would be useful to add?
FiveK wrote: Line 65: Leave the paragraph space for readability. Go ahead and change "Assuming that your marginal tax rate is equal to your tax bracket, calculated using your taxable income (Adjusted Gross Income minus deductions), is often correct." to "Assuming that your marginal tax rate is equal to your federal tax bracket is sometimes correct." if desired, but leaving as is also works. Delete either all additional text, or just delete "Most commonly, the term "marginal" denotes a "small" change. In the context of tax rates, "small" means a change in income small enough to capture only the local tax effects."

Line 78: Don't care whether "For visual learners," is retained or not. Delete the added paragraph.
Taxpayers across the income spectrum are affected by phase-outs, and most US taxpayers pay state income tax. I don't know the statistics but I'd bet only a small percentage of taxpayers have their marginal rate the same as their federal income bracket. It's a minor point but I think "often" is misleading in this context.

We established earlier that "small" is the most common definition for marginal, by looking at other sources. I still think this is an important concept, especially given the calculus section at the bottom of the article. I know are not fond of the "small" definition, but I specifically added a few sentences to cover cases when a small change might not be appropriate, along with a link to the source you cited. I'm surprised you want this content removed. Any other opinions?
FiveK wrote: Line 84: Delete added text. Just reference the existing federal tax section. The more those tables are reproduced, the more chance for error and at the very least requires more work to update each year. The calculus concept of a derivative is inappropriate for this context.
I don't agree that federal tax brackets shouldn't be mentioned. It's the largest component of marginal rate. I understand the concern about duplicating information, although this has to be balanced with the desire to present readers with useful information. There are plenty of other examples of duplicated information (eg. IRA income limit). At the very least, do you think would be worth mentioning the range of tax rates? It seems odd to me to start off with state income tax and skip federal entirely.

I also noticed there's not an article about federal income tax specifically. There is the progressive tax article, but that's more about the concept of a bracket structure and how it works than the basics of federal income tax. Maybe at some future time I'll write a federal income tax summary and see what people think, that would be the natural article to link too here. This editing process has taken longer than I expected and is making me hesitate to take on future editing projects, but we'll see. (The taxable account article went considerably better). In any case, in the absence of a dedicated article about federal tax, marginal rate seems to be one of the best, if not the best, place to talk about federal tax rates, no?
FiveK wrote: In short, going live with LadyGeek's revision as of 21:21, 17 June 2019 seems fine.
I'm a relative newcomer to this forum, but I did spearhead this revision and invest a ton of time into trying to make it better, including the last round of scrubbing. Maybe it's just my lack of experience here, but it struck me as a bit brash to roll back all these changes and publish with minimal discussion. At least, we should have had a discussion like this one prior to the rollback. I'm not going to make any more edits to the published article prior to some more discussion here, but I'm interested to hear what other community members have to say.
Agree that, as a practical matter, we should recommend using $50 or $100 increments for determining marginal federal income tax rate. The smallest step in the tax table is $50. For an odd tax rate (e.g., the old 15% bracket), using $50 increments will give $7 or $8 in turns. There was no 14% or 16% bracket, but that's how the tax table works. $100 smooths that.

Practical and theoretical both have a place.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Thu Aug 01, 2019 3:48 pm

fyre4ce wrote:
Tue Jul 30, 2019 11:44 pm
FiveK wrote:
Wed Jul 24, 2019 5:06 pm
There are other issues. Referencing https://www.bogleheads.org/w/index.php? ... ldid=65905, and using line numbers from the older version, here are reasons:
Line 1: Leave the "To emphasize the "change" calculation" clause, because the difference between marginal and (overall) effective remains an issue in many personal finance sites.
I think it's redundant, and it implies that we know the motivations behind why sources describe marginal rate a certain way, when we really can't. It's better to simply state the description.
You are correct, we don't know for sure why people describe describe marginal rate a certain way. A reasonable guess would be "because many others do, so people parrot it without thinking." Regardless, emphasizing "change" remains helpful in this context.
FiveK wrote: Line 56: Already discussed. Leave as is.
I don't think it's necessary to bring in tax tables in the header. Many taxpayers don't use the tax tables, but the mere fact that tax due is rounded to the nearest dollar or all US taxpayers means that a single dollar marginal rate will never be "accurate" - it will either be 0% or 100% depending on whether it increases tax due by $0 or $1. I do, however, think it's worth mentioning that marginal rates should be calculated with at least $100 increment for a resolution of 1%, and a multiple of $50 when using the tax tables. This is useful for anyone calculating their marginal rate with tax software or by hand. I added an estimation section but this was removed in the rollback. Any other opinions on whether this would be useful to add?
We may be using different definitions of "accurate." See viewtopic.php?f=2&t=281352&start=350#p4658749 for that and other points.
FiveK wrote: Line 65: Leave the paragraph space for readability. Go ahead and change "Assuming that your marginal tax rate is equal to your tax bracket, calculated using your taxable income (Adjusted Gross Income minus deductions), is often correct." to "Assuming that your marginal tax rate is equal to your federal tax bracket is sometimes correct." if desired, but leaving as is also works. Delete either all additional text, or just delete "Most commonly, the term "marginal" denotes a "small" change. In the context of tax rates, "small" means a change in income small enough to capture only the local tax effects."

Line 78: Don't care whether "For visual learners," is retained or not. Delete the added paragraph.
Taxpayers across the income spectrum are affected by phase-outs, and most US taxpayers pay state income tax. I don't know the statistics but I'd bet only a small percentage of taxpayers have their marginal rate the same as their federal income bracket. It's a minor point but I think "often" is misleading in this context.
No problem if you change "often" to "sometimes."
We established earlier that "small" is the most common definition for marginal, by looking at other sources. I still think this is an important concept, especially given the calculus section at the bottom of the article. I know are not fond of the "small" definition, but I specifically added a few sentences to cover cases when a small change might not be appropriate, along with a link to the source you cited. I'm surprised you want this content removed. Any other opinions?
If you want to reinstate "To calculate a marginal income tax rate, calculate how much tax you would owe with the income change, subtract from the current tax, and divide by the income change," that's fine. No need to comment on whether it's a small, medium, or large change.
FiveK wrote: Line 84: Delete added text. Just reference the existing federal tax section. The more those tables are reproduced, the more chance for error and at the very least requires more work to update each year. The calculus concept of a derivative is inappropriate for this context.
I don't agree that federal tax brackets shouldn't be mentioned. It's the largest component of marginal rate. I understand the concern about duplicating information, although this has to be balanced with the desire to present readers with useful information. There are plenty of other examples of duplicated information (eg. IRA income limit). At the very least, do you think would be worth mentioning the range of tax rates? It seems odd to me to start off with state income tax and skip federal entirely.
If you want to have a section titled "how to calculate marginal tax rates using a commercial tax program" (or words to that effect), that seems reasonable. Not everyone is comfortable with spreadsheets, so using the spreadsheet we've used for various marginal rate charts isn't for everyone. A "just the facts" (e.g., no reference to microeconomic theory) of how to use TurboTax, TaxAct, etc. to replicate the spreadsheet charts "by hand" could be useful - or persuade people that learning spreadsheet rudiments is easier. ;)
I also noticed there's not an article about federal income tax specifically. There is the progressive tax article, but that's more about the concept of a bracket structure and how it works than the basics of federal income tax. Maybe at some future time I'll write a federal income tax summary and see what people think, that would be the natural article to link too here. This editing process has taken longer than I expected and is making me hesitate to take on future editing projects, but we'll see. (The taxable account article went considerably better). In any case, in the absence of a dedicated article about federal tax, marginal rate seems to be one of the best, if not the best, place to talk about federal tax rates, no?
No.

Keeping wiki articles concise and focused on their title content will be helpful to most. An intentional article summarizing "all the usual advice" might be interesting, but lest we digress....

The t vs. R and marginal rate articles are contentious due to the misinformation (unfortunately, including in Bogleheads' Guide to Retirement Planning) that is all too prevalent. So yes, there's a bit of bending over backward to dispel that misinformation going on here, and such a posture may indeed seem odd when one hasn't been part of long debates on the topic.

It's reasonable to expect that articles on other, less contentious, topics would indeed have a smoother process. :)
FiveK wrote: In short, going live with LadyGeek's revision as of 21:21, 17 June 2019 seems fine.
I'm a relative newcomer to this forum, but I did spearhead this revision and invest a ton of time into trying to make it better, including the last round of scrubbing. Maybe it's just my lack of experience here, but it struck me as a bit brash to roll back all these changes and publish with minimal discussion. At least, we should have had a discussion like this one prior to the rollback. I'm not going to make any more edits to the published article prior to some more discussion here, but I'm interested to hear what other community members have to say.
I hope this has been helpful.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Thu Aug 08, 2019 1:32 pm

Comments regarding the t vs. R article.

Article scope: narrow vs. broad
Shades of gray here between “any content that doesn’t fall under the article’s title should be excluded” vs. “all content peripherally related to the article’s title should be included.” At minimum, it seems content that might cause a reasonable reader to wonder “but what does that have to do with ______?” should be identified as such.


Wordsmithing and content location
Three people editing an article might say things four different ways. E.g., whether to say “in most cases” because other cases could have different investments in the different accounts is a matter of taste.

The analysis behind maxing out retirement accounts applies not only to those who can do that when contributing, but also to anyone doing any amount of traditional to Roth conversion and paying the tax from cash on hand.


Rules of thumb vs. individual situation analysis
While some wordsmithing has occurred, there hasn’t been any significant improvement on these sentences from the first article revision in 2012: “The main reason to prefer one type of account over the other is the comparison of marginal tax rates. If your marginal tax rate now is higher than your estimated marginal tax rate at retirement, then the traditional account is better; if it is lower, then the Roth account is better.”

If only we could have reliable rules of thumb about future tax rates to use for those estimates.

Many specific rules of thumb have significant exceptions, with the “low bracket but high marginal rate” exception well described often by teen persuasion just one example.

For people who can’t be bothered to put any thought at all into their own situation, suggesting they flip a coin between 100% traditional or 50/50 is not unreasonable.


Conservatism of advice
There is the philosophical issue of where in the readers’ population distribution of various things (investment return, career length - whether terminated voluntarily or involuntarily, ability to “stay the course,” etc.) the wiki should target its advice. There is no objectively correct answer, and reasonable cases can be made for various approaches.

The usual approach is to aim for “conservative” as opposed to “accurate,” not least because we won’t know accuracy until hindsight takes over. One of the more famous bits of personal finance advice, the “4% Withdrawal Rate,” was based not on an average result, but rather what would suffice ~95% of the time.


Single year vs. multi-year analysis in retirement
AFAIK there is no generic tool that, including with all other sources of income, optimizes all of
- when to start SS benefits
- when to start a deferrable pension (COLA or non-COLA)
- when and how much to convert from traditional to Roth,
and includes
- all pertinent federal, state, and local tax effects
- all “tax-like” effects such as IRMAA, college financial aid eligibility, etc.

How best to advise people for a back-of-the-envelope withdrawal marginal tax rate estimate (even if computer aided) is a good question.


Making the t vs. R decision one (dollar/contribution/year/etc.) at a time
Within some income restrictions, and with some differences between 401ks and IRAs, tax law allows us to change the t vs. R decision at least every year. Thus, there is no need – and in fact it can be counterproductive – to assume one will use the same type for all future contributions.

It can be very useful for a person to understand the tax topography applicable to their entire allowable contribution’s tax rates, rather than look only at +/- $100 from some basis.


A marginal tax rate by any other name would….
The use of “marginal” throughout the article, except for the occasional reference to the label “cumulative” in the Excel chart, is to stay consistent with our use of "The main reason to prefer one type of account over the other is the comparison of marginal tax rates."

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by fyre4ce » Sat Aug 10, 2019 12:55 am

FiveK wrote:
Thu Aug 01, 2019 3:48 pm
You are correct, we don't know for sure why people describe describe marginal rate a certain way. A reasonable guess would be "because many others do, so people parrot it without thinking." <emphasis added> Regardless, emphasizing "change" remains helpful in this context.
Possibly, although to some degree that's how definitions work. As someone who has some experience with technical writing, I think it's better off without this clause, for the reasons I gave. It's not fatal to leave it in.
FiveK wrote:
Thu Aug 01, 2019 3:48 pm
We may be using different definitions of "accurate." See viewtopic.php?f=2&t=281352&start=350#p4658749 for that and other points.
In that context I meant "accurate" to mean "consistent with the definition". I've been very consistent with my edits from the start that the definition of marginal is "small enough to include a single bracket, but large enough to exclude rounding errors" (and I think I've made an excellent case that this both the most useful and the most consistent with other sources). Using this definition, a marginal rate calculated with a single dollar is indeed inaccurate to the definition of marginal rate, although it will be accurate to the tax code, assuming the calculation was done correctly. This is a long way of saying that it's okay to use "accurate" when referring to the rate calculation.
FiveK wrote:
Thu Aug 01, 2019 3:48 pm
If you want to have a section titled "how to calculate marginal tax rates using a commercial tax program" (or words to that effect), that seems reasonable. Not everyone is comfortable with spreadsheets, so using the spreadsheet we've used for various marginal rate charts isn't for everyone. A "just the facts" (e.g., no reference to microeconomic theory) of how to use TurboTax, TaxAct, etc. to replicate the spreadsheet charts "by hand" could be useful - or persuade people that learning spreadsheet rudiments is easier. ;)
Someone else agreed that having an estimation section would be good. Frankly, for someone who does their taxes with tax software, it would be easier to figure out their marginal rate with a dummy return than to enter all their tax info into a parallel spreadsheet, especially if their situation is complicated.
FiveK wrote:
Thu Aug 01, 2019 3:48 pm
No.

Keeping wiki articles concise and focused on their title content will be helpful to most. An intentional article summarizing "all the usual advice" might be interesting, but lest we digress....
I agree there's a trade-off with what content is included vs. excluded, but with federal tax being the largest component that seems a compelling case to mention it. Why do you want to mention state taxes but not federal?
FiveK wrote:
Thu Aug 01, 2019 3:48 pm
The t vs. R and marginal rate articles are contentious due to the misinformation (unfortunately, including in Bogleheads' Guide to Retirement Planning) that is all too prevalent. So yes, there's a bit of bending over backward to dispel that misinformation going on here, and such a posture may indeed seem odd when one hasn't been part of long debates on the topic.

It's reasonable to expect that articles on other, less contentious, topics would indeed have a smoother process. :)
One can hope.
FiveK wrote:
Thu Aug 01, 2019 3:48 pm
I hope this has been helpful.
My comment was more about the process than the specific edits. It's been helpful to discuss, but where do we go from here? Am I allowed to edit the article based on these comments?

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by fyre4ce » Sat Aug 10, 2019 1:57 am

FiveK wrote:
Thu Aug 08, 2019 1:32 pm
Comments regarding the t vs. R article.

Article scope: narrow vs. broad
Shades of gray here between “any content that doesn’t fall under the article’s title should be excluded” vs. “all content peripherally related to the article’s title should be included.” At minimum, it seems content that might cause a reasonable reader to wonder “but what does that have to do with ______?” should be identified as such.
Agreed.
FiveK wrote:
Thu Aug 08, 2019 1:32 pm
Wordsmithing and content location
Three people editing an article might say things four different ways. E.g., whether to say “in most cases” because other cases could have different investments in the different accounts is a matter of taste.

The analysis behind maxing out retirement accounts applies not only to those who can do that when contributing, but also to anyone doing any amount of traditional to Roth conversion and paying the tax from cash on hand.
My experience with the tax code and finance is that there are exceptions to almost every rule. Whether to mention exceptions should depend on how many and how common they are. In this case, the second half of the article is dedicated to discussing exceptions and complexities, and none of them are particularly rare (maybe exceeding the federal estate tax exemption could be considered rare after TCJA). In light of this, we should definitely mention that there are exceptions.
FiveK wrote:
Thu Aug 08, 2019 1:32 pm
Rules of thumb vs. individual situation analysis
While some wordsmithing has occurred, there hasn’t been any significant improvement on these sentences from the first article revision in 2012: “The main reason to prefer one type of account over the other is the comparison of marginal tax rates. If your marginal tax rate now is higher than your estimated marginal tax rate at retirement, then the traditional account is better; if it is lower, then the Roth account is better.”

If only we could have reliable rules of thumb about future tax rates to use for those estimates.

Many specific rules of thumb have significant exceptions, with the “low bracket but high marginal rate” exception well described often by teen persuasion just one example.
Agreed, although I would point out that "low bracket but high marginal rate" exception applies to some degree to both current and future rates. Current rates are for Saver's credit and EITC predominantly. Future rates are for phase-in of SS. The income ranges don't overlap exactly.
FiveK wrote:
Thu Aug 08, 2019 1:32 pm
For people who can’t be bothered to put any thought at all into their own situation, suggesting they flip a coin between 100% traditional or 50/50 is not unreasonable.
OK, you lost me. Flipping a coin seems like an unreasonable suggestion to me. Are you pulling this from some other source, or did you come up with it on your own? I can't see how this is a better guideline than "traditional in high income years, Roth in low income years", even accounting for atypical cases. I could be convinced but I'd want to see some analysis that this yields a better outcome than the standard suggestion I'm quoting for some sampling of taxpayers.
FiveK wrote:
Thu Aug 08, 2019 1:32 pm
Conservatism of advice
There is the philosophical issue of where in the readers’ population distribution of various things (investment return, career length - whether terminated voluntarily or involuntarily, ability to “stay the course,” etc.) the wiki should target its advice. There is no objectively correct answer, and reasonable cases can be made for various approaches.

The usual approach is to aim for “conservative” as opposed to “accurate,” not least because we won’t know accuracy until hindsight takes over. One of the more famous bits of personal finance advice, the “4% Withdrawal Rate,” was based not on an average result, but rather what would suffice ~95% of the time.
Conservatism is appropriate when the consequences for error in one direction are worse than in the other. A lot of cases in finance are like this, like how much to save and how much to withdraw. The consequences for running out of money are much worse than having too much. For cases when the consequences are closer to equal, it's better to be accurate than heavily biased in one direction. In the case of TvsR, as I showed, the actual effect of compensating for a shortfall with taxes is small, only a tenth as big as the shortfall itself. A monte carlo simulation might be useful to look at a range of incomes. Are there other sources that recommend this bias?
FiveK wrote:
Thu Aug 08, 2019 1:32 pm
Making the t vs. R decision one (dollar/contribution/year/etc.) at a time
Within some income restrictions, and with some differences between 401ks and IRAs, tax law allows us to change the t vs. R decision at least every year. Thus, there is no need – and in fact it can be counterproductive – to assume one will use the same type for all future contributions.

It can be very useful for a person to understand the tax topography applicable to their entire allowable contribution’s tax rates, rather than look only at +/- $100 from some basis.
Agreed with the concept, but per many long discussions we agreed it's best to first present readers with the simple case so they understand how the math works, then add in various complexities later. The simple situation math (which is what first explained the TvsR analysis to me, years ago) treats the contribution and withdrawal tax rates as constants. If they become functions of the contribution, then things get more complex. I created the "straddling bracket" specifically to deal with this issue and show how to analyze it. But if we treat tax rates as constants in the simple math section, we should be consistent.
FiveK wrote:
Thu Aug 08, 2019 1:32 pm
A marginal tax rate by any other name would….
The use of “marginal” throughout the article, except for the occasional reference to the label “cumulative” in the Excel chart, is to stay consistent with our use of "The main reason to prefer one type of account over the other is the comparison of marginal tax rates."
Current usage is consistent with the quote you gave. "The main reason" is not the same as "the only reason." Using a cumulative instead of marginal rate is just one more analysis tool to deal with corner cases when the simple method isn't sufficient. Same as cases where investments are different, matching is involved, accounts are maxed out, etc.

Let me remind everyone that we agreed to this use of terms on this topic earlier:
FiveK wrote:
Tue Jun 11, 2019 4:48 pm
I suggested "cumulative" as a compromise, because that is how the curve on the toolbox spreadsheet chart is labeled, but am certainly willing to consider others. I'd prefer not to use "average marginal" or "effective" due to the possibility of further promoting the "marginal vs. effective" misconception, but if we take great pains to distinguish those....
fyre4ce wrote:
Tue Jun 11, 2019 5:23 pm
That I could get behind. It's consistent with the personal finance toolbox, and also avoids possible confusion with the more common use of "average" (average over total earnings). It also preserves the distinction between the rate for a small and large interval. :beer Apologies if I missed your earlier proposal. I have some other edits I'm planning on making; you OK with me doing a scrub of both articles and we can see how it looks after?
FiveK wrote:
Tue Jun 11, 2019 5:42 pm
That's how wiki articles get built - have at it. :beer
We've spent a ton of time improving these articles and there seems to be universal agreement than they're better than what's published now. I'd really like to move onto more productive projects and I'd assume you feel the same way. If this is still a compromise you can live with, can we publish it and move on?

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Sat Aug 10, 2019 4:21 pm

Marginal rates:

For accuracy, calculating tax as the IRS calculates tax seems best. One could argue otherwise in an audit, but probably without success.

Marginal rates are used to help people make correct choices. They are often explained in introductory economics classes using smooth functions and derivatives, assuming that one can make infinitesimal choices. The real world usually doesn’t work that way. For examples,
  • The actual tax code
  • To build another large manufacturing facility may be a $1 billion yes/no choice
  • Overtime vs. another job: the choice of 1 hr of overtime is a good example of a “small” delta, while the choice of a Stay At Home Parent to take a full time job may be a “large” yes/no choice.
In all these cases, the appropriate denominator for a marginal rate is the size of the choice.

The definition of marginal rate given by Kitces in the article suggested by LadyGeek, “dividing the amount of additional taxes that will be due based on some decision (e.g., to take an IRA withdrawal) by the amount of income involved,” which the wiki had for several years, still seems best for the non-academic world, and I would support reinstating it. Short of reinstating it as “correct”, as long as we don’t imply it is “not correct” then let’s move on.

I’d be happy to delete both the state tax section and the federal tax section (and all the other specific sections), whether we reference them or not. In the interest of moving forward, accepting the version LadyGeek posted seemed reasonable.

Commercial tax software will calculate only one marginal rate for every step change one makes. It will be accurate (per IRS rules), but it can be tedious to construct a full marginal rate curve using this approach. The usefulness of that vs. a spreadsheet that uses approximate tax calculations (e.g., rates vs. tax tables) is in the eye of the beholder, so explaining both approaches seems reasonable.

Any wiki editor ( User list - Bogleheads may be the current list) has the ability to make changes. Perhaps if things get too contentious in the live version, one or more of Bogleheads.org – Members with “Ranks” might impose a fiat.

As a general point, consider many items posted by David Grabiner, who may have more pure math credentials than the rest of the wiki editors combined. Yet he also can eschew theory for practicality. For just two examples (there are probably even better ones), see http://remarque.org/~grabiner/Taxes-and-Investing.pdf and viewtopic.php?f=1&t=280312&p=4529556#p4529556.

One addition that seems particularly useful is the Method section in the t vs. R article. Specific numbers and adjectives aside (more on that in a t vs. R post), the pedagogical value of explaining that approach seems to merit including it (or similar) in the marginal rate article. One may not find this in the proverbial Econ 101 text, but its practical usefulness is notable.

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Sat Aug 10, 2019 4:23 pm

t vs. R:

Using “in most cases” – in most cases ;) (including here) - is fine.

Seems all agree that “If your marginal tax rate now is higher than your estimated marginal tax rate at retirement, then the traditional account is better; if it is lower, then the Roth account is better.” The direct comparison should be between contribution vs. withdrawal. Comparing only two different contribution rates (e.g., 10% vs. 12%, or 24% vs. 32%) – or two different incomes with the same contribution rate – to choose t vs. R may not be useful.

AFAIK, all studies/estimates suggest that the median person will have a lower income in retirement than while working. In that case, the kneejerk answer of “use traditional if deductible” is likely best, in a fair comparison vs. Roth. For those who want to minimize the maximum possible percent contribution error, 50/50 is correct. I would hope people are willing to expend at least a little thought and thus make an informed guess but see previous sentences if not.

Something along the lines of “contributing the same amount to t vs. R and spending whatever is left over, instead of considering the same pre-tax amounts, is not a mathematically fair comparison, but if that is what you would do…” could be a useful addition.

A bias to conservatism is common (Ramsey-esque 12% returns notwithstanding). A recent example, 401K - Did I make the wrong choice? Looking to retire in 10 years. discusses this from “the game theory aspect and the utility value aspect.”

In exceptional cases (a doctor in residency is a common example exception), one might project a large amount of future traditional contributions at higher marginal rates to justify a current Roth contribution at a “high but lower than future” marginal rate. For the majority, however, for whom such large income increases are less likely, nolesrule’s suggestions (e.g., see viewtopic.php?p=4687516#p4687516 and viewtopic.php?p=4687830#p4687830) to project based only on current balances is preferable.

Finally, I remain fine with the use of the word “cumulative.” :) It was in response to rkhusky’s post viewtopic.php?p=4599567#p4599567 that “cumulative” was replaced with “marginal” in many places. That seems to work for rkhusky and me. If you want to reinstate cumulative, I won’t argue but you might have to persuade rkhusky. ;)

Let’s see, a camel is a horse designed by something…?

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Sun Aug 11, 2019 10:52 pm

LadyGeek wrote:
Wed Jul 24, 2019 9:16 pm
For here, I think the better approach is to click on the "edit" button for the July 4, 2019 version.

Then, copy the content into the Bogleheads:Sandbox. Make changes, undo, change again until you're done. You'll keep a complete history of the changes and can revert anything that goes awry. When you're happy that everything is the way you want, copy that text as a new edit in the drat page (replace what's there with the revised content).
Done - thanks for the suggestion!

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by fyre4ce » Mon Aug 12, 2019 1:49 am

FiveK wrote:
Sun Aug 11, 2019 10:52 pm
LadyGeek wrote:
Wed Jul 24, 2019 9:16 pm
For here, I think the better approach is to click on the "edit" button for the July 4, 2019 version.

Then, copy the content into the Bogleheads:Sandbox. Make changes, undo, change again until you're done. You'll keep a complete history of the changes and can revert anything that goes awry. When you're happy that everything is the way you want, copy that text as a new edit in the drat page (replace what's there with the revised content).
Done - thanks for the suggestion!
:oops:

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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by fyre4ce » Mon Aug 12, 2019 5:59 am

FiveK wrote:
Sat Aug 10, 2019 4:23 pm
A bias to conservatism is common (Ramsey-esque 12% returns notwithstanding). A recent example, 401K - Did I make the wrong choice? Looking to retire in 10 years. discusses this from “the game theory aspect and the utility value aspect.”
Only have time to hit on one point today.

Agreed that a bias to conservatism is common, because in most cases the consequence of erring in one direction is worse than in the other. You didn't address any of my points though. You don't seem to disagree that in a situation with little to no difference in consequence for one direction vs. the other, then it's better to be accurate than biased in one direction. I asked for references, and the only one you provided was a short MMM discussion, which lacks any real analysis or references to more authoritative sources on the topic.

In the spirit of trying to help make good recommendations, I ran a monte carlo analysis on this tonight. Assumed random portfolio growth with a mean annual return of 4% and a standard dev of 4% (I realize this is small but the monte carlo needs a lot more cases when the spread gets wider). A $19k pre-tax contribution is directed toward either Roth or Traditional based on predicted future portfolio values. Expected value is the annual after-tax value of a 4% withdrawal from each Roth account, averaged over 5000 monte carlo cases. Expected utility is the square root of expected value, which imposes a bias toward bigger hits in income, also averaged over all cases. In other words, it assumes a diminishing value of money with increased income. The results are as follows:

Bias Expected Value ($) Expected Utility ($^0.5)
2% $111,407.91 332.349
1% $111,567.57 332.621
0 $112,085.48 333.371
-1% $112,023.78 333.276
-2% $111,707.75 332.823

Source file: https://drive.google.com/file/d/1bTDPnL ... sp=sharing (my own work)

This says that, on average, you'll end up with more utility without a bias in your growth predictions. There will be some cases where the negative bias will help, but most of the time you'll lose money, so in effect you're buying expensive insurance. With a concave enough utility function the negative bias would be better. In the absence of other analysis or authoritative references, I recommend we remove this text from the article.

I hate to say this, but I'm nearing the end of my involvement in this project. We're three months in and nine pages, and almost everyone except myself and FiveK has dropped out. Twice now have my edits been rolled back wholesale (I realize the second one was into the sandbox), we still don't have agreement on some fundamentals, and the headline recommendation in TvsR is currently one I disagree with, on one of my user pages. BH (wiki and forum) have been very helpful to me, and I've tried to give back through months of sustained effort, but I don't see this effort being productive anymore. I don't mean to be rude but I've got to look out for myself. I'll stick around to answer questions and help if I can, but I think the other editors should take it from here.

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LadyGeek
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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by LadyGeek » Mon Aug 12, 2019 7:52 pm

fyre4ce wrote:
Mon Aug 12, 2019 5:59 am
BH (wiki and forum) have been very helpful to me, and I've tried to give back through months of sustained effort, but I don't see this effort being productive anymore. I don't mean to be rude but I've got to look out for myself. I'll stick around to answer questions and help if I can, but I think the other editors should take it from here.
The wiki is a volunteer effort with no obligations. Thank you very much for everything, I've learned quite a lot. :beer

I'm more than happy to pick up the effort, but this particular discussion is a bit beyond my experience. I can certainly do the administrative parts and pitch in where I know the material.

As noted in this earlier post, you have a higher priority right now. :happy
fyre4ce wrote:
Mon Jul 22, 2019 6:08 pm
All,

Sorry for my sudden departure - my wife and I had a new baby and we've been busy taking care of a newborn.
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.

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FiveK
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Re: Seeking comment on proposed revisions to Marginal Tax Rate and Traditional v. Roth wiki articles

Post by FiveK » Mon Aug 19, 2019 2:55 pm

Copied the most recent User:Fyre4ce/Traditional versus Roth version into the live wiki.

Wonder if anyone not intimately associated with the edits will notice? :wink:

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