Traditional versus Roth wiki update

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fyre4ce
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Traditional versus Roth wiki update

Post by fyre4ce »

In response to some questions that have come up recently, I'm proposing a few updates to the Traditional versus Roth wiki page.

Current page: Traditional versus Roth
Proposed page: User:Fyre4ce/Traditional versus Roth

I don't consider any one change to be major, although when taken in total this could be considered a significant update. Changes and rationale are below, roughly in decreasing order of significance.
  1. Moved common cases to the top. In my opinion, the top section of the page, "General guidelines", should include a list of common cases where traditional and Roth contributions are preferred. This will provide maximum bang-for-buck, right at the top of the page, for readers who can't or won't wade into the more complex math further down. The examples I included cover the cases of the majority of readers, so these readers can find their closest matching case and be done. The current page has a similar, but shorter, list, much further down ("Qualitative considerations"); I eliminated this section, as it's merged into General guidelines.

    I also deleted a piece of content in General guidelines: "If one does not believe a reasonable estimate is possible (see estimating future marginal tax rate for suggestions), consider *Using 100% traditional because, for most people, traditional will be better, or *Using 50% traditional and 50% Roth because then you can't be more than 50% wrong". It's not that 100% T or 50/50 are bad suggestions, but this advice has some serious problems. First, it doesn't offer any way to decide between the two offered options. If this advice is to remain, we either need to (a) offer criteria for readers to choose between the two options, or (b) just offer the one option that will be the best for people on-average. But I deleted it entirely, because while I understand the desire to provide a "if you can't make any estimate at all, do X" suggestion, it doesn't really improve the page. The suggestion is hardly better than choosing randomly, so just remove the content and let readers choose randomly on their own if they can't make sense of anything. They won't be any better off with the suggestion that's there, and we might as well use that high-value space at the top of the page to help readers who can at least match their situation to one of the typical cases.
  2. Cleaned up the "Future marginal rate" section. The current page mentions that future contributions affect future tax rates ("When estimating retirement income, note the following possibilities: Predict high taxable retirement income > contribute to Roth > get low taxable.....") but it doesn't say what to do with that information. My updates give a more consistent method that will be easier for first-time readers to follow, where you assume a certain pattern of future contributions, then check that pattern to see if it's a correct one. I also added an explicit step to check wither you're affected by the SS taxation spike, which is a good idea - many investors are, or will be.

    More of a problem, the current page as-written recommends always excluding future contributions from analysis, which is not a good idea and will give inaccurate results in many cases. I understand not counting your chickens before they hatch, but in some situations (eg. having a very secure job) it would be crazy not to factor in future pre-tax contributions as a baseline. It's been argued assuming no future contributions is "simpler", but I disagree. By the time you're using Future Value functions to estimate future balances, putting a non-zero value in the payment field doesn't really make it any less simple, but it does make it much more accurate. Actually, using a FV function with 0 payments is a bit misleading, you might as well use Vo*(1+r)^t instead.

    I also added sub-section headers helps organize a complex and important part of the page, and some commentary about why traditional tends to be the right choice under "normal" conditions.
  3. Removed detail from Calculations section. The current page includes significant detail as "More complicated situations", but I replaced this with simple links to lower sections, for a few reasons. First, the content is redundant with the sections further down. Second, it interrupts the flow between the Simplest situation section, and the current and future marginal rate sections below, which follow naturally from it. Finally, the two examples that are there aren't exhaustive. So I replaced this with a much smaller bulletized list with 4 links instead.
  4. Tried to standardized calculations. Where possible, calculations are now in terms of a future tax rate on withdrawals, and use an inequality rather than an equals sign to make explicit when T or R is better. Tried to standardize variable names, and make consistent with formulas used in other parts of the wiki.
  5. Moved derivations onto a separate page. After some thought, this seems like a more effective use of space in the main page. If others agree this is a good idea, I'm prepared to do the same with tax-related analysis.
  6. Added content in the "Current marginal rate" section to cover business-related tax issues, which should be very useful to affected readers.
  7. Changed the terminology for the T vs R analysis to be a choice of "tax structure." The current page ties the description more to specific accounts, but the problem is, there are many different kinds of accounts with the same tax structure, and they all have quirks that complicate the analysis (eg. a Roth 457(b)). This wiki page properly ignores those differences (they're best discussed elsewhere), and focuses on the choice of whether to contribute pre-tax or Roth, and I think this is the most accurate way to describe it. It's consistent with terminology used elsewhere on the wiki (written by me, I admit).
  8. A couple analysis issues that are controversial (so far as I know), such as an asymmetric risk of traditional or roth, are now described as controversial and include links to relevant discussions in the forums. If these are actually settled questions (or if we settle them here) then these can be changed.
  9. Changed "Common misconceptions" header hierarchy. It makes much more sense for this section to be a child of "Calculations" than as the parent of current and future marginal rates. Actually, I assume this is an error in the current page.
  10. A few very minor additions or clarifications based on a couple more years of experience. For example, clarified that those worried about early death of a spouse and going to single filer tax brackets should prefer Roth; this is not explicit in the live page.
Taken in total, these updates improve the flow of the page roughly into a format of [non-math], [simple math] and finally [complex math], which I think is best for appealing to the widest base of readers. Obviously I think all these changes improve the page, but it's not all-or-nothing; they could be adopted piecemeal if there's a consensus that some but not others are improvements. Please provide feedback! Thanks in advance!
Last edited by fyre4ce on Wed Jan 06, 2021 11:09 pm, edited 1 time in total.
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Re: Traditional versus Roth wiki update

Post by willthrill81 »

Regarding #1, I get your point that providing advice for those that do not believe a reasonable estimate is possible has issues, but I'm concerned that those with this belief may experience 'analysis paralysis' otherwise. Perhaps this can be resolved by providing readers with the most common factors underlying the decision (e.g. existing tax-deferred balances, anticipated size of non-portfolio income) and how they impact the decision. An example (or two) might address the issue; if you like, I'd be happy to put one together as a possibility.
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Re: Traditional versus Roth wiki update

Post by megabad »

I didn't read all of your updates (or the entire original) but one of my biggest pet peeves with that wiki is that I could never find anything about Roth conversion ladders. There is a pretty decent sized contingent of Bogleheads that only contribute to Traditional because they intend to Roth convert for years and years. I think it is briefly mentioned in the Method section but it can be a primary driver so I feel like it should be mentioned elsewhere as well. For someone who retires at 50, there could be 20 years of roth conversions would could massively alter decision making.

I also don't love this line in guidelines: "Non-deductible contributions to a Traditional IRA are more similar to a taxable account than either traditional or Roth tax structures, and should be evaluated separately."---mainly because non-deductible IRA is not similar to taxable at all to me. That said, I like your general examples there better than the old one.
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

willthrill81 wrote: Wed Jan 06, 2021 9:33 pm Regarding #1, I get your point that providing advice for those that do not believe a reasonable estimate is possible has issues, but I'm concerned that those with this belief may experience 'analysis paralysis' otherwise. Perhaps this can be resolved by providing readers with the most common factors underlying the decision (e.g. existing tax-deferred balances, anticipated size of non-portfolio income) and how they impact the decision. An example (or two) might address the issue; if you like, I'd be happy to put one together as a possibility.
I like the idea a lot. One reason I didn't go in that direction is that I figured once numbers start coming into play, it's better to just do the analysis properly and get an accurate answer, than try to guess. I think having a simple example is really important for that. But, I did add a line toward the top about traditional being preferred for those with small pre-tax balances, and no other expected income. Really, that entire General guidelines section is meant for those with analysis paralysis. That said, I'd love to read any examples you can have that would make it easier for that portion of the audience. Frankly, it's much more important to appeal to those novice readers, than those with a financial analysis background who can probably figure out the complex stuff on their own.
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

megabad wrote: Wed Jan 06, 2021 10:19 pm I didn't read all of your updates (or the entire original) but one of my biggest pet peeves with that wiki is that I could never find anything about Roth conversion ladders. There is a pretty decent sized contingent of Bogleheads that only contribute to Traditional because they intend to Roth convert for years and years. I think it is briefly mentioned in the Method section but it can be a primary driver so I feel like it should be mentioned elsewhere as well. For someone who retires at 50, there could be 20 years of roth conversions would could massively alter decision making.
In my first draft I had an extra case for where Traditional contributions were preferred: "Investors with unusually volatile incomes and/or expected future low income years, which would present opportunities for future Roth conversions at low tax rates" Would you favor adding something like that back in?
megabad wrote: Wed Jan 06, 2021 10:19 pm I also don't love this line in guidelines: "Non-deductible contributions to a Traditional IRA are more similar to a taxable account than either traditional or Roth tax structures, and should be evaluated separately."---mainly because non-deductible IRA is not similar to taxable at all to me. That said, I like your general examples there better than the old one.
I'm surprised, I think they're pretty similar. Contributions are after-tax, withdrawals are taxable on growth and tax-free for return of basis. Only differences are lack of full tax deferral and preferential tax rates for the taxable account, and retirement account restrictions for ND-tIRA. In any case, maybe it would be simpler to say a ND-tIRA should be evaluated separately, and leave the taxable comparison out of it?
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Re: Traditional versus Roth wiki update

Post by megabad »

fyre4ce wrote: Wed Jan 06, 2021 11:06 pm In any case, maybe it would be simpler to say a ND-tIRA should be evaluated separately, and leave the taxable comparison out of it?
That is my preference but it isn't a huge deal. I just think nondeductible IRAs are conduits and nothing more for nearly everyone concerned with them (or at least they should be) so I don't think they are similar. It is just my mental viewpoint/opinion though.
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Re: Traditional versus Roth wiki update

Post by willthrill81 »

fyre4ce wrote: Wed Jan 06, 2021 10:46 pm
willthrill81 wrote: Wed Jan 06, 2021 9:33 pm Regarding #1, I get your point that providing advice for those that do not believe a reasonable estimate is possible has issues, but I'm concerned that those with this belief may experience 'analysis paralysis' otherwise. Perhaps this can be resolved by providing readers with the most common factors underlying the decision (e.g. existing tax-deferred balances, anticipated size of non-portfolio income) and how they impact the decision. An example (or two) might address the issue; if you like, I'd be happy to put one together as a possibility.
I like the idea a lot. One reason I didn't go in that direction is that I figured once numbers start coming into play, it's better to just do the analysis properly and get an accurate answer, than try to guess. I think having a simple example is really important for that. But, I did add a line toward the top about traditional being preferred for those with small pre-tax balances, and no other expected income. Really, that entire General guidelines section is meant for those with analysis paralysis. That said, I'd love to read any examples you can have that would make it easier for that portion of the audience. Frankly, it's much more important to appeal to those novice readers, than those with a financial analysis background who can probably figure out the complex stuff on their own.
Here's a potential example that I've placed in quotes below. Feel free to edit or not use it all as you see fit.
A couple with both spouses age 42 is married filing jointly, has $150,000 of earned household income, and will take the $25,100 standard deduction for 2021, leaving them with $124,900 of taxable income. This would place them in the 22% federal tax bracket. They currently have $100,000 saved in traditional (i.e., tax-deferred) accounts, and they anticipate that their investments will return 4% after inflation. They expect to receive $55,000 in Social Security benefits at age 67, their planned retirement age, and expect that the maximum of 85% of those benefits will be subject to taxation. They wish to save $40,000 of their annual income.

Including the standard deduction, the top of the 12% federal tax bracket for them will be $106,150 of adjusted gross income. Of the couple's $55,000 in Social Security benefits, $46,750 will be taxed, which would 'fill up' the standard deduction and the 10% tax bracket, with $1,750 taxed at 12%. Therefore, the couple's next $59,400 of income would be taxed at 12%. Assuming that they will withdraw 4% from their portfolio, this means that they need 25 times their needed withdrawal amount in traditional accounts: $1,485,000 (i.e., 25 x $59,400). As they already have $100,000 saved in traditional accounts and expect 4% inflation-adjusted returns, they will need to contribute approximately $2,440 per month for the 25 years remaining until retirement to reach the needed $1,485,000 traditional balance. This accounts for $29,280 in annual savings.

With the assumptions in place above, if the couple saved more than $29,280 annually in traditional accounts, the balance at retirement age would result in a portion of the withdrawals being taxed at 22%, the couple's current tax bracket. Therefore, in the absence of additional information, the remaining $10,720 of their desired annual savings could be contributed to either traditional or Roth accounts with the same after-tax outcome in any combination of the two (i.e., the couple's after-tax funds would be the same no matter which combination of traditional or Roth contributions they make). Some choose to 'overfund' traditional accounts because they can be used to pay for sizable medical expenses in retirement in a very tax efficient manner since qualified medical expenses exceeding 7.5% of adjusted gross income are deductible, if they believe that their heirs will be in a lower tax bracket when they inherit remaining funds, or if they wish to make tax-free qualified charitable distributions starting at age 70.5. Others choose to 'lock in' the 22% federal tax rate by making Roth contributions as a hedge against tax rates potentially going up in the future or if heirs are likely to be in a higher tax bracket when they inherit remaining funds. These are only some of the potential reasons for selecting either type of tax-advantaged account.
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Re: Traditional versus Roth wiki update

Post by FiveK »

fyre4ce wrote: Wed Jan 06, 2021 8:40 pm ...I'm proposing a few updates to the Traditional versus Roth wiki page.
The current structure has proven very convenient when responding to new threads, in particular the parts that seem to bother you the most.

Some of your suggestions may be very good, but get lost in your desire for wholesale revision.
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Re: Traditional versus Roth wiki update

Post by aristotelian »

megabad wrote: Wed Jan 06, 2021 10:19 pm
I also don't love this line in guidelines: "Non-deductible contributions to a Traditional IRA are more similar to a taxable account than either traditional or Roth tax structures, and should be evaluated separately."---mainly because non-deductible IRA is not similar to taxable at all to me. That said, I like your general examples there better than the old one.
Arguably nondeductible is *worse* than taxable. I would change that to say something more like "Non deductible contributions do not receive the primary benefit of Traditional IRA, so should be evaluated separately." I.e. without any comparison to taxable.
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

aristotelian wrote: Thu Jan 07, 2021 7:50 am
megabad wrote: Wed Jan 06, 2021 10:19 pm
I also don't love this line in guidelines: "Non-deductible contributions to a Traditional IRA are more similar to a taxable account than either traditional or Roth tax structures, and should be evaluated separately."---mainly because non-deductible IRA is not similar to taxable at all to me. That said, I like your general examples there better than the old one.
Arguably nondeductible is *worse* than taxable. I would change that to say something more like "Non deductible contributions do not receive the primary benefit of Traditional IRA, so should be evaluated separately." I.e. without any comparison to taxable.
Agreed, done. Thanks!
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

FiveK wrote: Thu Jan 07, 2021 12:35 am
fyre4ce wrote: Wed Jan 06, 2021 8:40 pm ...I'm proposing a few updates to the Traditional versus Roth wiki page.
The current structure has proven very convenient when responding to new threads, in particular the parts that seem to bother you the most.

Some of your suggestions may be very good, but get lost in your desire for wholesale revision.
I numbered the changes so that folks, such as yourself, could comment individually on the changes, and say which ones they do and don't like. I took a lot of time carefully describing what changes I made and why - feel free to elaborate on what issues you have with the changes. Also, I agree that usefulness to readers is a big factor for editing, so please provide examples (eg, links to threads, anonymized PMs) of where certain parts of the current page were or weren't useful to readers. That would be very helpful.
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Re: Traditional versus Roth wiki update

Post by grabiner »

fyre4ce wrote: Wed Jan 06, 2021 8:40 pm In response to some questions that have come up recently, I'm proposing a few updates to the Traditional versus Roth wiki page.

Current page: Traditional versus Roth
Proposed page: User:Fyre4ce/Traditional versus Roth

I don't consider any one change to be major, although when taken in total this could be considered a significant update. Changes and rationale are below, roughly in decreasing order of significance.
  1. Moved common cases to the top. In my opinion, the top section of the page, "General guidelines", should include a list of common cases where traditional and Roth contributions are preferred. This will provide maximum bang-for-buck, right at the top of the page, for readers who can't or won't wade into the more complex math further down. The examples I included cover the cases of the majority of readers, so these readers can find their closest matching case and be done.
I agree with the principle, although I would modify one of the cases. Investors in the 12% tax bracket who expect to be affected by the phase-in of SS taxation should prefer Roth IRAs. If you are in the 22% bracket now but expect to retire in the 12% bracket, you will pay at most 22.2% if you are in the upper phase-in, and the 22.2% will probably not be paid for all of your retirement (some years before starting SS, and since the limits are not indexed to inflation, you might get beyond the phase-in eventually).
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Re: Traditional versus Roth wiki update

Post by truenyer »

Quick question. In the Complex Cases > Maxing Out I see you added a table with sample marginal rates and breakeven withdrawl rates.

Under the table you say
even with a marginal tax rate today of 50.3%, after 40 years Roth contributions give more money after taxes with a withdrawal rate below 27%.
Maybe I'm crazy, but should that be *above*?

The original formula says that Traditional is preferred with MTRw < MTRn... Assuming the percentages in the table are MTRn..., shouldn't Roth be preferred if MTRw > MTRn?
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

truenyer wrote: Fri Jan 08, 2021 12:04 am Quick question. In the Complex Cases > Maxing Out I see you added a table with sample marginal rates and breakeven withdrawl rates.

Under the table you say
even with a marginal tax rate today of 50.3%, after 40 years Roth contributions give more money after taxes with a withdrawal rate below 27%.
Maybe I'm crazy, but should that be *above*?

The original formula says that Traditional is preferred with MTRw < MTRn... Assuming the percentages in the table are MTRn..., shouldn't Roth be preferred if MTRw > MTRn?
My intent was that the 26.88% value from the table was "below" 27%, but I can see how this can be very misleading. I just edited the sentence to make it more clear: "Roth contributions give more money after taxes with a withdrawal rate above just ~27%." Thanks!
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Re: Traditional versus Roth wiki update

Post by truenyer »

fyre4ce wrote: Fri Jan 08, 2021 12:23 am
truenyer wrote: Fri Jan 08, 2021 12:04 am Quick question. In the Complex Cases > Maxing Out I see you added a table with sample marginal rates and breakeven withdrawal rates.

Under the table you say
even with a marginal tax rate today of 50.3%, after 40 years Roth contributions give more money after taxes with a withdrawal rate below 27%.
Maybe I'm crazy, but should that be *above*?

The original formula says that Traditional is preferred with MTRw < MTRn... Assuming the percentages in the table are MTRn..., shouldn't Roth be preferred if MTRw > MTRn?
My intent was that the 26.88% value from the table was "below" 27%, but I can see how this can be very misleading. I just edited the sentence to make it more clear: "Roth contributions give more money after taxes with a withdrawal rate above just ~27%." Thanks!
Ahhhhh ok! I think that is the point to be made more clear under the table, beyond just the example. "If your withdrawal rate is predicted to be above the result in the table, Roth is preferred." I got really tripped up on that.
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

truenyer wrote: Fri Jan 08, 2021 12:25 am Ahhhhh ok! I think that is the point to be made more clear under the table, beyond just the example. "If your withdrawal rate is predicted to be above the result in the table, Roth is preferred." I got really tripped up on that.
Done!
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

grabiner wrote: Thu Jan 07, 2021 11:27 pm
fyre4ce wrote: Wed Jan 06, 2021 8:40 pm In response to some questions that have come up recently, I'm proposing a few updates to the Traditional versus Roth wiki page.

Current page: Traditional versus Roth
Proposed page: User:Fyre4ce/Traditional versus Roth

I don't consider any one change to be major, although when taken in total this could be considered a significant update. Changes and rationale are below, roughly in decreasing order of significance.
  1. Moved common cases to the top. In my opinion, the top section of the page, "General guidelines", should include a list of common cases where traditional and Roth contributions are preferred. This will provide maximum bang-for-buck, right at the top of the page, for readers who can't or won't wade into the more complex math further down. The examples I included cover the cases of the majority of readers, so these readers can find their closest matching case and be done.
I agree with the principle, although I would modify one of the cases. Investors in the 12% tax bracket who expect to be affected by the phase-in of SS taxation should prefer Roth IRAs. If you are in the 22% bracket now but expect to retire in the 12% bracket, you will pay at most 22.2% if you are in the upper phase-in, and the 22.2% will probably not be paid for all of your retirement (some years before starting SS, and since the limits are not indexed to inflation, you might get beyond the phase-in eventually).
Thanks for the review.

In general: For those facing a spike, I think there is a common misconception that it's just as good to come in above the spike as below it. That's not true. Coming in just above the spike means you're swallowing the whole spike, and paying 22.2% or 40.7% on a big chunk of income every year, even if your rate on the next dollar is only 12% or 22%. For higher earners who are already coming in well-above the spike and deferring at 24-32% or more, it's often better to just keep contributing pre-tax rather than to go all Roth and try to come in under the spike. But, for those who expect to be near the spike (12% now facing 22.2%, or 22-24% now facing 40.7%), my usual recommendation is to aim for the bottom of the spike with Roth contributions and/or conversions.

To your comment specifically: I agree with what you said, but can't someone in the 22% bracket now face a potential 40.7% spike in retirement? Maybe it would be better to say: "Investors who expect to be affected by a spike in Social Security taxation in retirement significantly higher than they're paying today"? Please let me know if this addresses your concern, or if I'm still missing something.
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Re: Traditional versus Roth wiki update

Post by dboeger1 »

I'm on mobile at the moment so didn't check the page, but if you insist on suggesting optimizations based on assumed future income, I would at least leave a note pointing out that some people may feel uncomfortable with such assumptions, and therefore should either modify their calculations or consider insurance to mitigate the risk of lost income. I think this is one of those issues where you can't necessarily separate the life implications from the math, because someone might make a choice based on 40 year assumptions and then change careers 3 years later, go back to school, etc. I understand why some would take into account future earnings potential and subsequent large retirement sums that would need to be drawn down in potentially higher brackets, but it's really not uncommon for people to people's situations to change or for them to leave the work force early once they reach a certain level of savings, so I don't think it's fair to brush it off as inconsequential either.
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

dboeger1 wrote: Fri Jan 08, 2021 1:32 am I'm on mobile at the moment so didn't check the page, but if you insist on suggesting optimizations based on assumed future income, I would at least leave a note pointing out that some people may feel uncomfortable with such assumptions, and therefore should either modify their calculations or consider insurance to mitigate the risk of lost income. I think this is one of those issues where you can't necessarily separate the life implications from the math, because someone might make a choice based on 40 year assumptions and then change careers 3 years later, go back to school, etc. I understand why some would take into account future earnings potential and subsquent large retirement sums that would need to be drawn down in potentially higher brackets, but it's really not uncommon for people to people's situations to change or for them to leave the work force early once they reach a certain level of savings, so I don't think it's fair to brush it off as inconsequential either.
Thanks for the feedback. I know you didn't read the page - I'd encourage you to read that section for full context, but here's the relevant part:
Consider any expected changes in income over the course of your career. Some careers have very stable income that can be safely relied upon. Certain careers are characterized by long periods of low-income training followed by much higher earnings; other careers have early periods of high income followed by more uncertainty. Make reasonable assumptions that are consistent with your overall financial plan; don't include unlikely swings in income, up or down.
I agree that in many cases it may be too optimistic to assume realizing the full potential of a future career. But, there are still reasonable ways to account for this possibility, for example, by assuming no future raises except what will keep pace with inflation, or assuming a retirement at 55-60 rather than 65-70 that may be your current plan.

My problem with the current page is that it always assumes zero future contributions (while at the same time assuming distant future withdrawals - a big contradiction). There are situations where this clearly doesn't make sense, for example, a teacher or tenured professor who enjoys their job and has to do little more than show up to keep it. Another case would be lower-income investors on a high-income career path (Eg. doctor in residency, or lawyer on a partner track) where they definitely want Roth contributions, but assuming no future pre-tax contributions will incorrectly recommend pre-tax today. Sure, there's not a 100% guarantee of future income, but that should not be required in order to factor that into the analysis. Nothing is guaranteed anyway.

Something else to remember - while some investors have their careers cut short or otherwise have drops in income, there are plenty of investors who have huge increases in income too. I see threads all the time where someone's business explodes, and where they were before contributing $19.5k or less to a 401k, they're now packing $58k/year into a Solo 401k and asking about cash balance plans. So, my suggestion, which is reflected in this update, is to assume some sort of reasonable future career path and pattern of future savings, and base your contributions today on that plan. It's not like you're locked in forever- you get to adjust each year.
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Re: Traditional versus Roth wiki update

Post by grabiner »

fyre4ce wrote: Fri Jan 08, 2021 1:25 am
grabiner wrote: Thu Jan 07, 2021 11:27 pm
fyre4ce wrote: Wed Jan 06, 2021 8:40 pm In response to some questions that have come up recently, I'm proposing a few updates to the Traditional versus Roth wiki page.

Current page: Traditional versus Roth
Proposed page: User:Fyre4ce/Traditional versus Roth

I don't consider any one change to be major, although when taken in total this could be considered a significant update. Changes and rationale are below, roughly in decreasing order of significance.
  1. Moved common cases to the top. In my opinion, the top section of the page, "General guidelines", should include a list of common cases where traditional and Roth contributions are preferred. This will provide maximum bang-for-buck, right at the top of the page, for readers who can't or won't wade into the more complex math further down. The examples I included cover the cases of the majority of readers, so these readers can find their closest matching case and be done.
I agree with the principle, although I would modify one of the cases. Investors in the 12% tax bracket who expect to be affected by the phase-in of SS taxation should prefer Roth IRAs. If you are in the 22% bracket now but expect to retire in the 12% bracket, you will pay at most 22.2% if you are in the upper phase-in, and the 22.2% will probably not be paid for all of your retirement (some years before starting SS, and since the limits are not indexed to inflation, you might get beyond the phase-in eventually).
Thanks for the review.

In general: For those facing a spike, I think there is a common misconception that it's just as good to come in above the spike as below it. That's not true. Coming in just above the spike means you're swallowing the whole spike, and paying 22.2% or 40.7% on a big chunk of income every year, even if your rate on the next dollar is only 12% or 22%. For higher earners who are already coming in well-above the spike and deferring at 24-32% or more, it's often better to just keep contributing pre-tax rather than to go all Roth and try to come in under the spike. But, for those who expect to be near the spike (12% now facing 22.2%, or 22-24% now facing 40.7%), my usual recommendation is to aim for the bottom of the spike with Roth contributions and/or conversions.

To your comment specifically: I agree with what you said, but can't someone in the 22% bracket now face a potential 40.7% spike in retirement? Maybe it would be better to say: "Investors who expect to be affected by a spike in Social Security taxation in retirement significantly higher than they're paying today"? Please let me know if this addresses your concern, or if I'm still missing something.
The Social Security spike is really a special case of one of the general principles; investors who expect to retire at a higher marginal tax rate should prefer Roth contributions. But this affects primarily investors in the 12% bracket, because the phase-in of SS taxation is often entirely in the 12% bracket (as in the wiki example for married couples). Such investors will never have a marginal tax rate over 22.2%, and will be at 12% for part of retirement (before taking SS, or if they get over the phase-in.) Thus traditional is better for them in the 22% bracket.

Investors in the 22% bracket who are in the 22% bracket for all of retirement do benefit from Roth contributions if they are ever able to move down into the phase-in range; they avoid 22% taxation on some income and 40.7% on other income. It is break-even if they are above the SS phase-in.

So I propose the wording, "Investors who expect a spike in Social Security taxation to give them a significantly higher marginal tax rate in retirement than they have now; this affects primarily investors in the 12% bracket."
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Re: Traditional versus Roth wiki update

Post by JBTX »

A lot of these changes I agree with in theory but it seems like it is getting a bit wordy and complex

To the extent possible some finer points may better serve as a footnote

I would suggest in the first couple of paragraphs, something along the lines of:

- typically the primary driver of whether to use traditional or Roth is based upon whether your marginal tax rate now vs whether you will have an opportunity in the future to withdrawal or convert at an even lower marginal tax rate (I am sure that it can worded much better than that)

Other points for the detail:

- for those contributing to their 401ks or IRAS at maximum contribution levels, with the Roth option you can contribute more with the Roth on an after tax basis, in most cases. I'd add a footnote reference about needing to invest tax savings into a taxable (or other) account to have an apples to apples comparison.

- in some cases the income reduction from choosing traditional may open additional or Roth IRA contribution space.

Estate planning: this may be too much into the weeds, but Roth may be advantageous in those cases where IRA assets are passed on in an irrevocable trust, because Trust tax rates are much higher and steeper than ordinary income rates.

Also, Roth can be advantageous for estate planning as it doesnt require you to liquidate ira assets via rmds if you plan on leaving larger amounts to heirs.

Perhaps this was mentioned- I didn't read the whole thing, but similar to the points above, Roth by not requiring RMDS will allow you to maintain tax advantaged status for a longer period if you don't need the full amount of the rmd.
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

grabiner wrote: Fri Jan 08, 2021 11:30 am The Social Security spike is really a special case of one of the general principles; investors who expect to retire at a higher marginal tax rate should prefer Roth contributions. But this affects primarily investors in the 12% bracket, because the phase-in of SS taxation is often entirely in the 12% bracket (as in the wiki example for married couples). Such investors will never have a marginal tax rate over 22.2%, and will be at 12% for part of retirement (before taking SS, or if they get over the phase-in.) Thus traditional is better for them in the 22% bracket.

Investors in the 22% bracket who are in the 22% bracket for all of retirement do benefit from Roth contributions if they are ever able to move down into the phase-in range; they avoid 22% taxation on some income and 40.7% on other income. It is break-even if they are above the SS phase-in.

So I propose the wording, "Investors who expect a spike in Social Security taxation to give them a significantly higher marginal tax rate in retirement than they have now; this affects primarily investors in the 12% bracket."
Thanks, I edited the page with your suggestion.
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

JBTX wrote: Fri Jan 08, 2021 11:51 am A lot of these changes I agree with in theory but it seems like it is getting a bit wordy and complex

To the extent possible some finer points may better serve as a footnote

I would suggest in the first couple of paragraphs, something along the lines of:

- typically the primary driver of whether to use traditional or Roth is based upon whether your marginal tax rate now vs whether you will have an opportunity in the future to withdrawal or convert at an even lower marginal tax rate (I am sure that it can worded much better than that)

Other points for the detail:

- for those contributing to their 401ks or IRAS at maximum contribution levels, with the Roth option you can contribute more with the Roth on an after tax basis, in most cases. I'd add a footnote reference about needing to invest tax savings into a taxable (or other) account to have an apples to apples comparison.

- in some cases the income reduction from choosing traditional may open additional or Roth IRA contribution space.

Estate planning: this may be too much into the weeds, but Roth may be advantageous in those cases where IRA assets are passed on in an irrevocable trust, because Trust tax rates are much higher and steeper than ordinary income rates.

Also, Roth can be advantageous for estate planning as it doesnt require you to liquidate ira assets via rmds if you plan on leaving larger amounts to heirs.

Perhaps this was mentioned- I didn't read the whole thing, but similar to the points above, Roth by not requiring RMDS will allow you to maintain tax advantaged status for a longer period if you don't need the full amount of the rmd.
A huge challenge for the writers of this page is that it's a potentially very complex topic, and we are trying to appeal to a wide range of readers - novices looking for a quick answer and have no interest in doing any math, intermediates who want to understand the basic concepts and who are willing to crunch some numbers, and experts who are trying to optimize around complex tax laws. I realize the current page is long, and this edit makes it slightly longer. Trying to address this problem, one of the goals of my edits was to make the page flow more smoothly from less complex content at the top to more complex content at the bottom, and I think that more than balances any increase in length. By all means, if you have a suggestion on how to better achieve this goal, I'd love to hear it.

That said, both the current page and my proposed edit do address most of the topics you bring up:
  • Maxing out your accounts describes the issue you raise, and gives a couple ways to solve it: a table of pre-computed values for a range of tax rates, and an equation where you can analyze your own situations yourself
  • Lack of RMDs for Roth accounts
  • Traditional opening up Roth contribution space isn't covered (and I suspect most readers can just contribute to a Roth IRA through the backdoor anyway), but an example of splitting types of contributions to take example of tax rate boundaries is covered here
  • There is an Estate planning section, but it doesn't specifically mention tax rates inside irrevocable trusts
And the sentence you suggested does have a close match in the General guidelines section:
The decision between deductible traditional vs. Roth contributions hinges primarily on a comparison between a known tax rate now vs. an estimated tax rate at withdrawal.
Happy to hear any further comments.
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Re: Traditional versus Roth wiki update

Post by dboeger1 »

fyre4ce wrote: Fri Jan 08, 2021 11:04 am
dboeger1 wrote: Fri Jan 08, 2021 1:32 am I'm on mobile at the moment so didn't check the page, but if you insist on suggesting optimizations based on assumed future income, I would at least leave a note pointing out that some people may feel uncomfortable with such assumptions, and therefore should either modify their calculations or consider insurance to mitigate the risk of lost income. I think this is one of those issues where you can't necessarily separate the life implications from the math, because someone might make a choice based on 40 year assumptions and then change careers 3 years later, go back to school, etc. I understand why some would take into account future earnings potential and subsquent large retirement sums that would need to be drawn down in potentially higher brackets, but it's really not uncommon for people to people's situations to change or for them to leave the work force early once they reach a certain level of savings, so I don't think it's fair to brush it off as inconsequential either.
Thanks for the feedback. I know you didn't read the page - I'd encourage you to read that section for full context, but here's the relevant part:
Consider any expected changes in income over the course of your career. Some careers have very stable income that can be safely relied upon. Certain careers are characterized by long periods of low-income training followed by much higher earnings; other careers have early periods of high income followed by more uncertainty. Make reasonable assumptions that are consistent with your overall financial plan; don't include unlikely swings in income, up or down.
I agree that in many cases it may be too optimistic to assume realizing the full potential of a future career. But, there are still reasonable ways to account for this possibility, for example, by assuming no future raises except what will keep pace with inflation, or assuming a retirement at 55-60 rather than 65-70 that may be your current plan.

My problem with the current page is that it always assumes zero future contributions (while at the same time assuming distant future withdrawals - a big contradiction). There are situations where this clearly doesn't make sense, for example, a teacher or tenured professor who enjoys their job and has to do little more than show up to keep it. Another case would be lower-income investors on a high-income career path (Eg. doctor in residency, or lawyer on a partner track) where they definitely want Roth contributions, but assuming no future pre-tax contributions will incorrectly recommend pre-tax today. Sure, there's not a 100% guarantee of future income, but that should not be required in order to factor that into the analysis. Nothing is guaranteed anyway.

Something else to remember - while some investors have their careers cut short or otherwise have drops in income, there are plenty of investors who have huge increases in income too. I see threads all the time where someone's business explodes, and where they were before contributing $19.5k or less to a 401k, they're now packing $58k/year into a Solo 401k and asking about cash balance plans. So, my suggestion, which is reflected in this update, is to assume some sort of reasonable future career path and pattern of future savings, and base your contributions today on that plan. It's not like you're locked in forever- you get to adjust each year.
Thanks for quoting the page. While I would have written that section differently, I still think it's at least satisfactory that it addressed the issue. At this point, my response is less about the page edits and more about the financial aspect, just because it's fun to talk about, lol.

The big issue I still have with assuming future earnings is that the severity of outcomes is not equal. Getting seriously ill or injured and racking up expensive medical bills can have a much bigger negative impact than the positive impact of saving a bit more. If the only sensible approach is to assume stable future income and make optimal decisions based on that, then by extension, every young investor should not only be 100% stocks but also highly leveraged. I mean, we can just assume the market will go up in the long run and we have many years to invest, right?

In practice, many investors have different risk tolerances, and there is value in some degree of security. In fact, this is the foundation of insurance. Any time someone buys insurance, they're paying a premium to offload risk. Starting out 50/50 between Roth and traditional is effectively a form of self-insurance against unfavorable tax situations in the future. Until one has a certain level of retirement savings, any assumptions about reaching such a level where Roth outperforms traditional are inherently taking on the risk of being unable to reach that level.

I think your approach is sensible for many who judge that risk to be low, but I hesitate to recommend it as a default approach for inexperienced investors. They're probably better off basing their decision on their current tax bracket. Not only is it the only known variable, but up front savings may have outsized value if a younger investor intends to use them to buy a first home or start a business, at which point comparing tax rates doesn't tell the whole story.
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Re: Traditional versus Roth wiki update

Post by FiveK »

fyre4ce wrote: Thu Jan 07, 2021 4:38 pm
FiveK wrote: Thu Jan 07, 2021 12:35 am
fyre4ce wrote: Wed Jan 06, 2021 8:40 pm ...I'm proposing a few updates to the Traditional versus Roth wiki page.
The current structure has proven very convenient when responding to new threads, in particular the parts that seem to bother you the most.

Some of your suggestions may be very good, but get lost in your desire for wholesale revision.
I numbered the changes so that folks, such as yourself, could comment individually on the changes, and say which ones they do and don't like. I took a lot of time carefully describing what changes I made and why - feel free to elaborate on what issues you have with the changes. Also, I agree that usefulness to readers is a big factor for editing, so please provide examples (eg, links to threads, anonymized PMs) of where certain parts of the current page were or weren't useful to readers. That would be very helpful.
1. The most generic rule of thumb is "compare your current marginal rate to your future marginal rate, etc." Any other rules of thumb are making an implicit assumption of someone's future marginal rate. Better to make that an explicit assumption.
For someone who does not wish to make that assumption, see any article on "median savings for 60 year old people" or similar for the logic behind "for most people, traditional will be better."
For someone wanting to hedge bets, 50/50 does minimize the maximum error. Not what I would personally suggest, but appropriate for the general guidelines section.
In short, it ain't broke so let's not try to fix it.

2. As others have also commented, some "contingency planning" is appropriate for an introductory article, thus the "don't count your chickens before..." nature of the "One approach..." given. As the wording implies, there could be other approaches. Again, it ain't broke so let's not try to fix it.

I'll be happy to discuss the remaining points once we can settle these.

In general, the advice given in viewtopic.php?p=5697236#p5697236 seems reasonable:
How about this - Instead of replacing the existing page with your proposed update, supplement it instead:
...
Readers looking for the "technical deep-dive" can use your page. Inexperienced investors can use the current page.
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Re: Traditional versus Roth wiki update

Post by patrick013 »

Why don't you use a flowchart approach instead of equations ?

Initially choose between tIRA and Roth based on current tax rate
and financial flexibility.

Subsequentially choose Roth conversions based on higher or lower
current rates, a go or no decision.

Subsequentially choose between backdoor and mega based on 401k
conditions.

Choose from options for large accounts and estate planning based
on several flowchart conditions.


My decision was easy as I knew my tax rate would be lower (flowchart
decision 1).

When I converted to Roth I knew I wouldn't need the money and a Roth
account was desired (flowchart decision 2).

So if I had a decision oriented flowchart I would have used it twice
to reach what becomes 2 very simple decisions based on a graphic
decision support chart.

This one is a little old.
https://bn1305files.storage.live.com/y4 ... pmode=none
age in bonds, buy-and-hold, 10 year business cycle
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

dboeger1 wrote: Sat Jan 09, 2021 5:08 am Thanks for quoting the page. While I would have written that section differently, I still think it's at least satisfactory that it addressed the issue. At this point, my response is less about the page edits and more about the financial aspect, just because it's fun to talk about, lol.

The big issue I still have with assuming future earnings is that the severity of outcomes is not equal. Getting seriously ill or injured and racking up expensive medical bills can have a much bigger negative impact than the positive impact of saving a bit more. If the only sensible approach is to assume stable future income and make optimal decisions based on that, then by extension, every young investor should not only be 100% stocks but also highly leveraged. I mean, we can just assume the market will go up in the long run and we have many years to invest, right?

In practice, many investors have different risk tolerances, and there is value in some degree of security. In fact, this is the foundation of insurance. Any time someone buys insurance, they're paying a premium to offload risk. Starting out 50/50 between Roth and traditional is effectively a form of self-insurance against unfavorable tax situations in the future. Until one has a certain level of retirement savings, any assumptions about reaching such a level where Roth outperforms traditional are inherently taking on the risk of being unable to reach that level.

I think your approach is sensible for many who judge that risk to be low, but I hesitate to recommend it as a default approach for inexperienced investors. They're probably better off basing their decision on their current tax bracket. Not only is it the only known variable, but up front savings may have outsized value if a younger investor intends to use them to buy a first home or start a business, at which point comparing tax rates doesn't tell the whole story.
I don't think I disagree with anything you wrote here, but it seems like it might be confusing a few different things. For example, there are issues with a 100% stock AA (chance bonds could outperform stocks over your investment horizon, you are more likely to sell out at the bottom of a crash, etc.) that don't have much to do with a T vs R decision.

Leaning toward traditional as insurance against having a shortfall is a concept that's been discussed before, and my wiki update mentions it specifically, in the Tax risk section:
Traditional accounts have a slight advantage when future income is uncertain. Choosing traditional today and being wrong usually means you have more money than you expected in retirement, which is not the worst problem to have. But choosing Roth today and being wrong means you had a significant shortfall in savings for some reason. The size of this asymmetry and whether it should impact decisions today is debated.
Personally, I'm not a fan of this idea, and I've run a few types of analyses that said the value of the insurance is small. If you need to insure your future income, upping your savings rate and buying disability insurance are far more effective solutions. But, it is an open question, which is why I added a link to the forums discussion.

The next section, Tax diversification, covers diversification between current and future rates.

Fundamentally, the goal is to try to estimate a future tax rate by estimating future income. Making a good T vs R decision without that is very hard (except maybe if current rates are low; most people at 12% or less today should be choosing Roth). You can either assume (a) no future income, (b) reduced future income, (c) baseline future income consistent with your plan, or (d) higher-than-expected future income. We probably agree (d) doesn't make sense. My opinion is that in most cases, (c) is the right answer for this choice, but of course you should take steps in the other areas of your finance to protect against a shortfall. The wiki is currently written to recommend (a) to everyone (I understand it says "one approach..." but that's the one it offers) and that doesn't sound right to me. Maybe some people should choose (b) or even (a), but (c) seems like the obvious choice for the baseline, and people can adjust from there.

Are there any financial authorities that recommend tax planning around assuming no future income? (That's a question for everyone, not just you.) I genuinely don't know.
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

patrick013 wrote: Sat Jan 09, 2021 1:06 pm Why don't you use a flowchart approach instead of equations ?
I like the idea a lot. It will be big, but when I get a bit of time I'll take a cut and post it here.

I don't think it will eliminate the need to calculate, though. For example, if the flow chart asks if you will be maxing out your accounts and you say yes, then you should calculate the break-even withdrawal rate that would switch you to Roth. I'm not sure of a way around that without losing a lot of accuracy.
patrick013 wrote: Sat Jan 09, 2021 1:06 pm Initially choose between tIRA and Roth based on current tax rate and financial flexibility.
Can you say a bit more about this? I've never found a good way to make a T vs R decisions based solely on current tax rate, with one exception: if current rate is <=12% then Roth is usually (but not always) best. There are no similar rules at high taxes though. A high tax rate now and a modest early retirement strongly favor traditional, but a high tax now thru retirement strongly favor Roth.
patrick013 wrote: Sat Jan 09, 2021 1:06 pm Subsequentially choose Roth conversions based on higher or lower current rates, a go or no decision.

Subsequentially choose between backdoor and mega based on 401k conditions.

Choose from options for large accounts and estate planning based on several flowchart conditions.
There are separate page on Roth conversions, Backdoor Roth, Mega Backdoor Roth, and Esate planning with Stretch IRAs that would overly complicate an already complex page. My page has links to all of them, though.
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

FiveK wrote: Sat Jan 09, 2021 11:49 am 1. The most generic rule of thumb is "compare your current marginal rate to your future marginal rate, etc." Any other rules of thumb are making an implicit assumption of someone's future marginal rate. Better to make that an explicit assumption.
For someone who does not wish to make that assumption, see any article on "median savings for 60 year old people" or similar for the logic behind "for most people, traditional will be better."
100% agreed up to this point.
FiveK wrote: Sat Jan 09, 2021 11:49 am For someone wanting to hedge bets, 50/50 does minimize the maximum error. Not what I would personally suggest, but appropriate for the general guidelines section.
In short, it ain't broke so let's not try to fix it.
To be clear, I think 50/50 is actually a reasonable answer for many people. But the section is definitely "broke" in two ways. First, it's not a proper recommendation because it does not offer any way to decide between the two options. It would be like programming Google Maps to say "Turn left.... or turn right." ...what? Way too confusing. It's okay if you don't have a background in technical writing, but this is a big no-no. The goal of us writers should be to do lots of careful research and thought, and boil down the complex ideas to simple instructions that readers can follow. What's written now falls short. Second, it doesn't meet the wiki's requirement for content, namely that it's either sourced from relevant authorities, or derived with math from first principles. It's neither. I've asked for links where this text has helped people, and you haven't provided any. So, I'm not including it in its current form in this review. We've been over this, and I'm not sure it's worth discussing these same points anymore.

BUT.... we may be able to salvage it. One way is to just give the best choice on average. I'd be OK saying something like, "traditional is the better choice for most people most of the time, so if you're unable to make any estimates of your future income, choose traditional." Or, it could also be improved by giving a way to choose between the two options. Pretend I'm new to the forums and I PM you asking, "I don't know much about finance and hate doing math. I see the wiki says I should either choose 100% traditional, or 50/50. But which should I pick?" Think carefully about how you'd respond, and if we can come up with a way for people to choose that will be better than flipping a coin, I'm all for adding it. Let me know.
FiveK wrote: Sat Jan 09, 2021 11:49 am 2. As others have also commented, some "contingency planning" is appropriate for an introductory article, thus the "don't count your chickens before..." nature of the "One approach..." given. As the wording implies, there could be other approaches. Again, it ain't broke so let's not try to fix it.
I'm all for being conservative, but let's remember we're talking about tax planning here, not savings or insurance. It's totally reasonable to save more than the % of income that would barely allow you to have the retirement you want if you keep earning your same salary adjusted for inflation until 65. But I've talked to a good number of financial planners, accountants, estate planning attorneys, etc. and not a single one has recommended a tax or estate plan that assumes I never earn an income beyond this year. (one example) If you can cite some sources we'll certainly take a look. It may be appropriate in some cases, but it should not be the norm.
FiveK wrote: Sat Jan 09, 2021 11:49 am How about this - Instead of replacing the existing page with your proposed update, supplement it instead:
...
Readers looking for the "technical deep-dive" can use your page. Inexperienced investors can use the current page.
I'm open to breaking the page up into pieces - maybe a basic and an advanced - but I don't think it makes sense to do that around the margins of these updates. They're sprinkled throughout the page and wouldn't work well when separated. Also, I'm trying to improve the page for novice readers mostly, so if anything, mine would be the basic page.
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Re: Traditional versus Roth wiki update

Post by bacon4retirement »

I like the new layout and found list of common situations in item 1 helpful.
Traditional contributions and Roth conversions have the same net effect as a Roth contribution. So, Roth contributions can be simulated by, for example, making traditional contributions to a 401(k) and doing Roth conversions from a traditional IRA.
Is this paragraph referring just to backdoor contributions with a calendar year? Or to any Roth conversion, including ones far into the future? Either way, I am not sure why simulations options would be under the heading of eligibility.
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

bacon4retirement wrote: Sat Jan 09, 2021 11:54 pm I like the new layout and found list of common situations in item 1 helpful.
Thanks!
bacon4retirement wrote: Sat Jan 09, 2021 11:54 pm Traditional contributions and Roth conversions have the same net effect as a Roth contribution. So, Roth contributions can be simulated by, for example, making traditional contributions to a 401(k) and doing Roth conversions from a traditional IRA.
My thought was this: let's say you have a t401k and a tIRA, but you want to make Roth contributions. You could open a Roth IRA, but that's only a $6-7k limit. Instead or in addition, you could contribute $19.5k to the t401k and then convert $19.5k from the tIRA to a Roth IRA, getting the same net effect of a Roth 401k. The pre-tax contributions in one account give you tax-space to make Roth contributions from another. But you need a pre-tax tIRA, or a 401k that allows in-service withdrawals for this to work.

Maybe it's too confusing to justify the space - let me know what you think after this explanation. I'm open to just deleting it.
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Re: Traditional versus Roth wiki update

Post by patrick013 »

fyre4ce wrote: Sat Jan 09, 2021 10:46 pm
patrick013 wrote: Sat Jan 09, 2021 1:06 pm Initially choose between tIRA and Roth based on current tax rate and financial flexibility.
Can you say a bit more about this? I've never found a good way to make a T vs R decisions based solely on current tax rate...
Here's an old worksheet with various tax rate comparisons to
exemplify. Check the Cash In/Cash Out ratios.
https://onedrive.live.com/embed?cid=A2E ... uqOkY&em=2
I use something like this to decide. Granted some people have very low tax
rates and others have very high tax rates but to start out these are good numbers. If someone can't determine future tax rates, well, their best guess or 50-50.

I don't see where withdrawal rate would have anything else to do
with it and maxing these accounts makes the most sense whatever
option seems best. The IRR's used to decide what to start remain
the same.

The future can lead to some decision points based on taxes, cash
needs, and portfolio preference but that has to be done when it
happens.

Sometimes the difference is small and other times the difference is large
as well as portfolio AA overall. By large I mean approaching 1% + or -
long term IRR by making a naive decision or AA. So following the basic guide
will be very good whether a future event would've made the decision
slightly better. Opportunities may arise for conversions or investments
for future estates, etc. based primarily on tax rates then.
age in bonds, buy-and-hold, 10 year business cycle
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

patrick013 wrote: Sun Jan 10, 2021 12:15 am Here's an old worksheet with various tax rate comparisons to
exemplify. Check the Cash In/Cash Out ratios.
https://onedrive.live.com/embed?cid=A2E ... uqOkY&em=2
I use something like this to decide. Granted some people have very low tax
rates and others have very high tax rates but to start out these are good numbers. If someone can't determine future tax rates, well, their best guess or 50-50.

I don't see where withdrawal rate would have anything else to do
with it and maxing these accounts makes the most sense whatever
option seems best. The IRR's used to decide what to start remain
the same.
That sheet you mentioned actually does include a "RETIREMENT TAX RATE"; it's not possible to calculate the value of a pre-tax without it. Rather than try to make a decision based solely on your tax situation today, my suggestion (and also that of the current page, the method is just slightly different) is to make a crude estimate of your future taxable income using guaranteed income and Future Value functions for current assets that will generate taxes later on. This is a pretty standard approach recommended by many financial planning authorities (see one link below). While it is more work, it greatly improves the accuracy of the estimate.
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Re: Traditional versus Roth wiki update

Post by Iorek »

For what it's worth, I much prefer the existing "general considerations" because I think it is usable for the average person. I actually think offering the two options is helpful because it illustrates that the "right" answer will only really be knowable in retrospect. If you believe that's untenable then I would just say something like "For most people traditional will work better. For some examples [or "factors to consider"] where traditional might not work better see [next section]."

I think the list of situations is both too complicated and too vague to be helpful. For example, if you make the point that the question is whether marginal tax rate is higher in retirement than today, does it really help someone to say "Investors who expect to have other sources of taxable income in retirement (Social Security, pensions, royalties, real estate income, annuity income, Inherited IRAs, etc.) which, when combined with traditional withdrawals, will put them in a higher bracket than today"

I guess it might be helpful to flag to someone that it might be possible for other sources of income to be relevant, but the heart of that sentence is the question of whether it "will put them in a higher tax bracket", not just the fact of receiving additional income. Likewise, people can be heavy savers but still not have expected RMDs that push them to a higher tax bracket than they are currently in.

Similarly I am not sure what the wiki says these days about stretch IRAs, but I am also not sure what it means to say that an investor who plans to leave a large traditional account should favor a Roth?
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FiveK
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Re: Traditional versus Roth wiki update

Post by FiveK »

fyre4ce wrote: Sat Jan 09, 2021 11:38 pm
FiveK wrote: Sat Jan 09, 2021 11:49 am 1. The most generic rule of thumb is "compare your current marginal rate to your future marginal rate, etc." Any other rules of thumb are making an implicit assumption of someone's future marginal rate. Better to make that an explicit assumption.
For someone who does not wish to make that assumption, see any article on "median savings for 60 year old people" or similar for the logic behind "for most people, traditional will be better."
100% agreed up to this point.
That's a start....
FiveK wrote: Sat Jan 09, 2021 11:49 am For someone wanting to hedge bets, 50/50 does minimize the maximum error. Not what I would personally suggest, but appropriate for the general guidelines section.
In short, it ain't broke so let's not try to fix it.
To be clear, I think 50/50 is actually a reasonable answer for many people. ...
I've asked for links where this text has helped people, and you haven't provided any.
Because I'm not going to waste my time citing all the posts in which people have suggested "tax diversification" and the OP has noted "that makes sense". If you're not aware of those, perhaps more participation to appreciate the various perspectives people bring to the forum would help you.

Note that those aren't my posts, and I tend to agree with @willthrill81's position that "tax diversification" doesn't provide the same benefits as "investment diversification". But the article shouldn't be about any one person's ideas.
BUT.... we may be able to salvage it.
If all it takes for consensus is to put "If you are reluctant to contribute at all because you aren't sure which is best for you" in front of "Using 50% traditional and 50% Roth because then you can't be more than 50% wrong" then by all means.
FiveK wrote: Sat Jan 09, 2021 11:49 am 2. As others have also commented, some "contingency planning" is appropriate for an introductory article, thus the "don't count your chickens before..." nature of the "One approach..." given. As the wording implies, there could be other approaches. Again, it ain't broke so let's not try to fix it.
...not a single one has recommended a tax or estate plan that assumes I never earn an income beyond this year.
...If you can cite some sources we'll certainly take a look. It may be appropriate in some cases, but it should not be the norm.
It's actually less conservative than KlangFool's usual suggestion not to look at any growth at all. ;)
And "never earn an income beyond this year" is not what the current page assumes.

It would be reasonable to append something like "This approach is conservative, catering to things such as earlier retirement (voluntary or involuntary) and other life setbacks. For a more aggressive approach, [insert fyre4ce's methodology here]."
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truenyer
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Re: Traditional versus Roth wiki update

Post by truenyer »

fyre4ce wrote: Sat Jan 09, 2021 11:38 pm
FiveK wrote: Sat Jan 09, 2021 11:49 am For someone wanting to hedge bets, 50/50 does minimize the maximum error. Not what I would personally suggest, but appropriate for the general guidelines section.
In short, it ain't broke so let's not try to fix it.
To be clear, I think 50/50 is actually a reasonable answer for many people.
Tangential question. When you say 50/50, I assume you mean 50% pretax and 50% Roth *employee* contributions.

Shouldn't employer match & contributions factor in here? For example, if my company matches/contributes $15k in a given year and the deferred comp limit is $19,500, that is a total of $34,500. To split it 50/50, shouldn't my contribution be $17,250 Roth and $2,250 pre-tax to achieve the 50/50 goal?

After all, in retirement, pre-tax contributions vs. pre-tax employer match is all the same pot.
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

Iorek wrote: Sun Jan 10, 2021 12:59 am For what it's worth, I much prefer the existing "general considerations" because I think it is usable for the average person. I actually think offering the two options is helpful because it illustrates that the "right" answer will only really be knowable in retrospect. If you believe that's untenable then I would just say something like "For most people traditional will work better. For some examples [or "factors to consider"] where traditional might not work better see [next section]."

I think the list of situations is both too complicated and too vague to be helpful. For example, if you make the point that the question is whether marginal tax rate is higher in retirement than today, does it really help someone to say "Investors who expect to have other sources of taxable income in retirement (Social Security, pensions, royalties, real estate income, annuity income, Inherited IRAs, etc.) which, when combined with traditional withdrawals, will put them in a higher bracket than today"

I guess it might be helpful to flag to someone that it might be possible for other sources of income to be relevant, but the heart of that sentence is the question of whether it "will put them in a higher tax bracket", not just the fact of receiving additional income. Likewise, people can be heavy savers but still not have expected RMDs that push them to a higher tax bracket than they are currently in.

Similarly I am not sure what the wiki says these days about stretch IRAs, but I am also not sure what it means to say that an investor who plans to leave a large traditional account should favor a Roth?
First off, here's the wiki page on Stretch IRAs, which includes updates for the SECURE act.

Thanks for your input on General considerations. You got the correct idea for the "taxable income" case. Some people expect pensions, have lots of rental properties whose income won't be sheltered by depreciation in retirement, etc. and we want to make sure those factor into the equation. Members of the military in particular are often prime candidates for Roth, but that's mentioned further down. But, guaranteed retirement income besides SS is relatively uncommon nowadays, so it seemed to make sense to create a special category. The "higher tax bracket" caveat separates those with 1 rental property from those with 30.

Are you suggesting eliminating examples completely, or changing the list of ones cited?
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FiveK
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Re: Traditional versus Roth wiki update

Post by FiveK »

truenyer wrote: Sun Jan 10, 2021 1:20 am Tangential question. When you say 50/50, I assume you mean 50% pretax and 50% Roth *employee* contributions.

Shouldn't employer match & contributions factor in here? For example, if my company matches/contributes $15k in a given year and the deferred comp limit is $19,500, that is a total of $34,500. To split it 50/50, shouldn't my contribution be $17,250 Roth and $2,250 pre-tax to achieve the 50/50 goal?

After all, in retirement, pre-tax contributions vs. pre-tax employer match is all the same pot.
Yes, that's correct.

50/50 is primarily an arbitrary number (except in the coincidental case in which a detailed prognostication returns that answer) best suited for someone with analysis paralysis because it does minimize the maximum error. That approach does help some folks dive in, and is thus helpful in those situations.
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

FiveK wrote: Sun Jan 10, 2021 1:07 am Because I'm not going to waste my time citing all the posts in which people have suggested "tax diversification" and the OP has noted "that makes sense". If you're not aware of those, perhaps more participation to appreciate the various perspectives people bring to the forum would help you.
My experience dealing with T vs R questions in the forums is that the kind of future rate estimation that's in both versions (although I do prefer mine for reasons stated) is what people need and is usually the best and most accurate way to arrive at an answer. This is aside from mechanical questions like how to do a Backdoor or Mega Backdoor Roth.

Keep in mind that the wiki and what people recommend in the forum don't have to be identical. The wiki is intended to be a more polished reference that works in conjunction with the forum, which deals with personal and practical issues associated with specific situations. In fact, the two will probably work best if they have slightly different angles.
FiveK wrote: Sun Jan 10, 2021 1:07 amIf all it takes for consensus is to put "If you are reluctant to contribute at all because you aren't sure which is best for you" in front of "Using 50% traditional and 50% Roth because then you can't be more than 50% wrong" then by all means.
Reluctance to contribute shouldn't be tied to which tax structure is best. Someone should first choose to save for retirement, then choose which accounts, tax structures, and investments. But I understand people aren't perfect and it doesn't always work that way. If the goal is to coax people into saving into a retirement account in the first place (rather than spending the $ or saving it in taxable), let me suggest this:

"For those who can't or won't make a reasonable estimate of future tax rates, traditional is likely the best choice, because it's best for most people most of the time. For those reluctant to save for retirement at all, either traditional or Roth or any mix is almost always a better choice than saving outside retirement accounts. In addition to providing more future income after taxes, traditional and Roth accounts also offer other benefits such as asset protection and estate planning."

Or something like that. Eager to hear what you think.
FiveK wrote: Sat Jan 09, 2021 11:49 am It's actually less conservative than KlangFool's usual suggestion not to look at any growth at all. ;)
Yeah, well, I happen to think a good fraction of this board is overly conservative - excluding house from net worth while including the mortgage, ignoring Social Security, 2.5% withdrawal rates, 3% nominal rates of return, etc.
FiveK wrote: Sat Jan 09, 2021 11:49 am And "never earn an income beyond this year" is not what the current page assumes.
FiveK wrote: Sat Jan 09, 2021 11:49 am It would be reasonable to append something like "This approach is conservative, catering to things such as earlier retirement (voluntary or involuntary) and other life setbacks. For a more aggressive approach, [insert fyre4ce's methodology here]."
It doesn't explicitly exclude future income, but it does exclude all pre-tax and taxable contributions, which is close. That could make sense if someone is contributing 100% Roth, and has such a tight budget they expect no money left over at the end of the year. But it's not a common situation. I tried to edit the page to leave it open - reader can assume future contributions, or not, depending on their plan and confidence in it. Step 1 is to assume that plan, which may or may not have income and savings. I'm happy to make a no-savings an explicit option. Do me a favor, take a look through my page again in that section and see if you can suggest any specific edits that would make clear that future contributions may or may not be included.
Last edited by fyre4ce on Sun Jan 10, 2021 1:04 pm, edited 1 time in total.
Iorek
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Re: Traditional versus Roth wiki update

Post by Iorek »

fyre4ce wrote: Sun Jan 10, 2021 1:45 am
Thanks for your input on General considerations. You got the correct idea for the "taxable income" case. Some people expect pensions, have lots of rental properties whose income won't be sheltered by depreciation in retirement, etc. and we want to make sure those factor into the equation. Members of the military in particular are often prime candidates for Roth, but that's mentioned further down. But, guaranteed retirement income besides SS is relatively uncommon nowadays, so it seemed to make sense to create a special category. The "higher tax bracket" caveat separates those with 1 rental property from those with 30.

Are you suggesting eliminating examples completely, or changing the list of ones cited?
I am suggesting deleting the examples completely. I think the level of detail on the current page is about right for a wiki overview of "general considerations".

If you really want to add more I think you could create a new section or possibly a new paragraph at the end of the current section which says something like "Some examples of situations where you might find yourself in a higher tax bracket in retirement than when saving are: [insert list of examples, such as military personnel, especially when receiving tax-free pay; young people who expect significant income growth later in their career; people with other significant sources of retirement income, etc]."

I think that would do better to get people thinking about the issue in a useful way and it would avoid us having to debate how likely it really is that social security and/or a pension (and/or RMDs) will really bump people to a higher marginal tax rate in retirement.
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Re: Traditional versus Roth wiki update

Post by patrick013 »

fyre4ce wrote: Sun Jan 10, 2021 12:36 am
patrick013 wrote: Sun Jan 10, 2021 12:15 am Here's an old worksheet with various tax rate comparisons to
exemplify. Check the Cash In/Cash Out ratios.
https://onedrive.live.com/embed?cid=A2E ... uqOkY&em=2
I use something like this to decide. Granted some people have very low tax
rates and others have very high tax rates but to start out these are good numbers. If someone can't determine future tax rates, well, their best guess or 50-50.

I don't see where withdrawal rate would have anything else to do
with it and maxing these accounts makes the most sense whatever
option seems best. The IRR's used to decide what to start remain
the same.
That sheet you mentioned actually does include a "RETIREMENT TAX RATE"; it's not possible to calculate the value of a pre-tax without it. Rather than try to make a decision based solely on your tax situation today, my suggestion (and also that of the current page, the method is just slightly different) is to make a crude estimate of your future taxable income using guaranteed income and Future Value functions for current assets that will generate taxes later on. This is a pretty standard approach recommended by many financial planning authorities (see one link below). While it is more work, it greatly improves the accuracy of the estimate.
Sure, the spreadsheet I prepared calc's based on high and low tax rates
and includes 20 years of accumulation and 20 years of equal withdrawals
based on 7% avg return and an account balance of zero after 20 years of
withdrawals. So the rigid math is done in percent and the aggregate but
market crashes aren't guessed into it just a reasonable low avg return.
So I'm very happy using it for decision making for the initial choice including
an estimate of future income and tax as a separate calculation.

Employer matches/contributions are free money tax-deferred and after-tax contributions based on availability and budgeting are added calc's where
an added backdoor Roth can be acquired at no added cost which is very
desirable. So some added calc's are needed after the initial choice. It's
not quite as simple then of course. Wish I had a bigger flowchart sometimes.

Have a good one.





.
age in bonds, buy-and-hold, 10 year business cycle
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FiveK
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Re: Traditional versus Roth wiki update

Post by FiveK »

fyre4ce wrote: Sat Jan 09, 2021 11:38 pm To be clear, I think 50/50 is actually a reasonable answer for many people. But the section is definitely "broke" in two ways. First, it's not a proper recommendation because it does not offer any way to decide between the two options. It would be like programming Google Maps to say "Turn left.... or turn right." ...what? Way too confusing.
That would actually be good programming for Google Maps if one told it "I don't know where I'm going."

In that case, turning either right or left may be correct, and there is not enough information for Google Maps to choose. ;)

Remember that in the wiki one reaches the "either all traditional or 50/50" choice only "If one does not believe a reasonable estimate [of withdrawal marginal rates] is possible." That's pretty much the equivalent of telling Google Maps "I don't know where I'm going." :)

If this causes people to go do a back-of-the-envelope estimate of where they may end up, that will have been a useful outcome.
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Re: Traditional versus Roth wiki update

Post by dboeger1 »

Being a programmer myself, I've actually been considering for quite some time creating a detailed "life calculator" that allows for more specific inputs than the typical savings tools you find online. T vs. R is actually my #1 motivation because I think it's one of those things that's not very intuitive, and I suspect running actual numbers would be quite illuminating for many people, myself included. The result is influenced by so many nuances and variables, so I don't think there's necessarily a way to create a straightforward spreadsheet that does a fair comparison.

At a minimum, buying one's first home has to be taken into account, because it represents a major shift from paying annually increasing rent to annually decreasing unrecoverable costs, fixed finite housing costs, and it's usually a person's earliest major leveraged investment. For those reasons, I suspect buying one's first home is almost always highly advantageous in the long run, perhaps even at the expense of retirement account contributions, and traditional saves money up front which can speed up buying a home. But it also has huge lifestyle implications, and so in the end, that's a hugely personal and individual variable that doesn't necessarily have a universally correct mathematical answer.

Similarly, there should be a way to account for other leveraged or high-return investments not available within retirement accounts, such as private businesses. For example, if someone starts a business where they suddenly find themselves making 100x their investment annually, it may make sense to stop contributing to retirement accounts entirely, assuming they can efficiently deploy all of that capital and keep making such outstanding returns.

Then there's the issue of combined incomes, such as through marriage or family. Depending on how the incomes are distributed (including over time) and taxes are filed, this can potentially have a huge impact on tax rates. Also, it's very common for marriage to open up access to additional savings vehicles, such as spousal retirement accounts, social security, increased employer HSA contributions, etc.

Then you have to be able to account for unexpected changes in savings, perhaps due to unemployment, illness, untimely death, unforeseen expenses, etc. One would need to be able to estimate the difference between T vs. R in such scenarios, and also maybe add in the drag due to insurance costs if one chooses to utilize that as a means of mitigating risk.

You would also need to take into account tax strategies on withdrawals in retirement... as if guessing tax brackets wasn't hard enough, this is a huge unknown.

Basically, you need to be able to model an entire life with all of these nuances to even start to develop a firm grasp on what the exact tradeoffs are. I've been putting off the life calculator project for quite some time now in favor of other pursuits, but this thread has renewed my interest in it. I won't promise anything, but I think I'm going to take a stab at it in the near future now that the wiki page is getting attention.
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

dboeger1 wrote: Tue Jan 12, 2021 3:18 am Being a programmer myself, I've actually been considering for quite some time creating a detailed "life calculator" that allows for more specific inputs than the typical savings tools you find online. T vs. R is actually my #1 motivation because I think it's one of those things that's not very intuitive, and I suspect running actual numbers would be quite illuminating for many people, myself included. The result is influenced by so many nuances and variables, so I don't think there's necessarily a way to create a straightforward spreadsheet that does a fair comparison.

At a minimum, buying one's first home has to be taken into account, because it represents a major shift from paying annually increasing rent to annually decreasing unrecoverable costs, fixed finite housing costs, and it's usually a person's earliest major leveraged investment. For those reasons, I suspect buying one's first home is almost always highly advantageous in the long run, perhaps even at the expense of retirement account contributions, and traditional saves money up front which can speed up buying a home. But it also has huge lifestyle implications, and so in the end, that's a hugely personal and individual variable that doesn't necessarily have a universally correct mathematical answer.

Similarly, there should be a way to account for other leveraged or high-return investments not available within retirement accounts, such as private businesses. For example, if someone starts a business where they suddenly find themselves making 100x their investment annually, it may make sense to stop contributing to retirement accounts entirely, assuming they can efficiently deploy all of that capital and keep making such outstanding returns.

Then there's the issue of combined incomes, such as through marriage or family. Depending on how the incomes are distributed (including over time) and taxes are filed, this can potentially have a huge impact on tax rates. Also, it's very common for marriage to open up access to additional savings vehicles, such as spousal retirement accounts, social security, increased employer HSA contributions, etc.

Then you have to be able to account for unexpected changes in savings, perhaps due to unemployment, illness, untimely death, unforeseen expenses, etc. One would need to be able to estimate the difference between T vs. R in such scenarios, and also maybe add in the drag due to insurance costs if one chooses to utilize that as a means of mitigating risk.

You would also need to take into account tax strategies on withdrawals in retirement... as if guessing tax brackets wasn't hard enough, this is a huge unknown.

Basically, you need to be able to model an entire life with all of these nuances to even start to develop a firm grasp on what the exact tradeoffs are. I've been putting off the life calculator project for quite some time now in favor of other pursuits, but this thread has renewed my interest in it. I won't promise anything, but I think I'm going to take a stab at it in the near future now that the wiki page is getting attention.
A couple years ago I made the exact same observation, and wrote (in stages) an Excel/VB program that did basically what you're describing. It ended up being over 3000 lines of code, most of which is for calculating taxes correctly. And the tax model is relatively simple; it includes payroll tax, a couple of states, NIIT, and the Section 199A deduction, but that's about it. I did use it last year to help a friend decide whether to shoot over or under the SS taxation spike in retirement. If you're interested in taking a look, PM me and I can send it to you. I think it's coded for tax year 2020.
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

FiveK wrote: Sun Jan 10, 2021 2:35 pm That would actually be good programming for Google Maps if one told it "I don't know where I'm going."

In that case, turning either right or left may be correct, and there is not enough information for Google Maps to choose. ;)

Remember that in the wiki one reaches the "either all traditional or 50/50" choice only "If one does not believe a reasonable estimate [of withdrawal marginal rates] is possible." That's pretty much the equivalent of telling Google Maps "I don't know where I'm going." :)

If this causes people to go do a back-of-the-envelope estimate of where they may end up, that will have been a useful outcome.
Nope, sorry, I don't agree. If you have advice that's targeted at the most novice readers who can't make any progress with a quantitative analysis, it needs to be super-simple and clear, not giving them choices to consider without a clear way to choose between them. Offering more nuance and putting more of the onus back on the reader may be appropriate for an advanced section where you can assume readers can figure stuff out for themselves, but not for what we're talking about.

As I said earlier, I'm not huge fan of a "if you can't make sense of anything, do X" instruction. If someone's gonna choose randomly, let them choose randomly, and invest that page space toward readers who could at least match their case to one of the typical ones, or convinced to try an analysis (it's not that hard, once you know get the bigger picture). But, I know you feel strongly so I'm trying to find something that's technically accurate, and also as helpful to readers as possible - including, as you mentioned, encouraging them to save anything in the first place. I just did an edit of my page with a couple sentences similar to what I proposed above. Take a look and let me know what you think. It can be edited further.
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

Iorek wrote: Sun Jan 10, 2021 12:09 pm I am suggesting deleting the examples completely. I think the level of detail on the current page is about right for a wiki overview of "general considerations".

If you really want to add more I think you could create a new section or possibly a new paragraph at the end of the current section which says something like "Some examples of situations where you might find yourself in a higher tax bracket in retirement than when saving are: [insert list of examples, such as military personnel, especially when receiving tax-free pay; young people who expect significant income growth later in their career; people with other significant sources of retirement income, etc]."

I think that would do better to get people thinking about the issue in a useful way and it would avoid us having to debate how likely it really is that social security and/or a pension (and/or RMDs) will really bump people to a higher marginal tax rate in retirement.
Several reviewers in this thread liked my idea of moving the cases toward the top (and of course I did too). But I want to consider all opinions here. I made some edits to the draft page based on what you suggest. I separated out the cases and also tweaked the language of the retirement income case. Let me know if you think this is better, or at least a compromise you think you can live with. Thanks!
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Re: Traditional versus Roth wiki update

Post by 4a757374696e »

One small update: there should be punctuation before the footnotes.
... but all future growth and withdrawals are tax-free in retirement[1][2] The approach that incurs...
should be
... but all future growth and withdrawals are tax-free in retirement.[1][2] The approach that incurs...
This was a problem in the original article too.
Don't do anything tomorrow that can be done today
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Re: Traditional versus Roth wiki update

Post by 4a757374696e »

Also, there are many inconsistencies with the capitalization of "traditional" throughout the page. I believe that all of the instances should be lowercase unless (1) it is the beginning of a sentence, (2) it is the title/link of another page, or (3) it is used inside a table.
Don't do anything tomorrow that can be done today
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Re: Traditional versus Roth wiki update

Post by fyre4ce »

4a757374696e wrote: Wed Jan 13, 2021 1:16 am Also, there are many inconsistencies with the capitalization of "traditional" throughout the page. I believe that all of the instances should be lowercase unless (1) it is the beginning of a sentence, (2) it is the title/link of another page, or (3) it is used inside a table.
Thanks. I’ll take a look and clean this and your other comment up tomorrow.
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Re: Traditional versus Roth wiki update

Post by BackToSchoolDad »

The only thing I can contribute is that I think the Savers Credit and other credits should be mentioned in the general guidelines section at the beginning in case that's the only thing people read. To me, it can make favoring traditional contributions for people that are within range of various credits especially beneficial.

For example, we're in a low enough bracket that usual advice would be to contribute to Roth, but thanks to the Savers credit our entire federal tax bill can be wiped out with enough Traditional contributions. We can then use those to put back into Roth if we haven't maximized IRA space.
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