Are Traditional IRA's Out of Vogue ?

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Fillmore
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Joined: Fri Dec 04, 2020 10:36 am

Are Traditional IRA's Out of Vogue ?

Post by Fillmore »

So I'm no longer a landlord so I'll lose the tax benefits to that.

As of April 1 (today) my 4% salary increase went into effect.

So I'm looking to lower my tax burden, I'm sure the prudent thing to do would be to increase my with holding.

I currently contribute to a Roth in addition to a traditional 401K, on the 401K I prefer to not increase contributions.

I was thinking of contributing to a Traditional IRA and not to the Roth going forward.

It seems the in thing to do these days is to convert from Traditional to Roth.

I'm almost certain that I will be in a lower tax bracket when I semi retire, which could be within the next few years (my current thought).

Would it be prudent to go with Traditional IRA going forward ?
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retired@50
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Re: Are Traditional IRA's Out of Vogue ?

Post by retired@50 »

Why don't you want to add more to the 401k plan?

It's tax-deferred just like a traditional IRA isn't it?

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
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FiveK
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Re: Are Traditional IRA's Out of Vogue ?

Post by FiveK »

Fillmore wrote: Mon Apr 01, 2024 5:40 pm So I'm looking to lower my tax burden, I'm sure the prudent thing to do would be to increase my with holding.
Withholding won't change your tax burden - it only changes the timing of your payments.
Would it be prudent to go with Traditional IRA going forward ?
Will you be able to claim a deduction on a traditional IRA contribution?

See also Prioritizing investments.
Topic Author
Fillmore
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Re: Are Traditional IRA's Out of Vogue ?

Post by Fillmore »

FiveK wrote: Mon Apr 01, 2024 5:47 pm
Fillmore wrote: Mon Apr 01, 2024 5:40 pm So I'm looking to lower my tax burden, I'm sure the prudent thing to do would be to increase my with holding.
Withholding won't change your tax burden - it only changes the timing of your payments.
Would it be prudent to go with Traditional IRA going forward ?
Will you be able to claim a deduction on a traditional IRA contribution?

See also Prioritizing investments.

Thank you, I will NOT be able to take a deduction on a Traditional IRA.
ehh
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Re: Are Traditional IRA's Out of Vogue ?

Post by ehh »

Do you have access to a high deductible health plan (HDHP) and would such a plan work for you? If so, contributing to a Health Savings Account (HSA) will reduce your taxable income. An HSA has several useful features. https://www.bogleheads.org/wiki/Health_savings_account
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David Jay
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Re: Are Traditional IRA's Out of Vogue ?

Post by David Jay »

retired@50 wrote: Mon Apr 01, 2024 5:47 pm Why don't you want to add more to the 401k plan?
This is my question as well. Fillmore states that they don't want to contribute more but does not state a reason.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
rkhusky
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Re: Are Traditional IRA's Out of Vogue ?

Post by rkhusky »

If you plan to put stocks in the tIRA, a taxable account is better than a non-deductible tIRA. And Roth is better than taxable.
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David Jay
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Re: Are Traditional IRA's Out of Vogue ?

Post by David Jay »

rkhusky wrote: Mon Apr 01, 2024 10:15 pm If you plan to put stocks in the tIRA, a taxable account is better than a non-deductible tIRA.
Agree, because long term stock (including stock mutual funds) gains inside the tIRA will be taxed as regular income, Gains in taxable wil receive the lower long term capital gains tax rate.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
IowaFarmBoy
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Re: Are Traditional IRA's Out of Vogue ?

Post by IowaFarmBoy »

I think the focus on Roth conversions comes from people like me- retired, not drawing SS yet and in a lower tax bracket than we will be once SS and/or RMDs start. You're in a different stage. If you expect to be in a lower tax bracket later, contributing to a traditional IRA and converting/withdrawing later makes total sense. I'd advise forecasting what RMDs will be required later and also the impact on tax rates if you have to change your tax filing from married to single (which sadly will happen to almost all couples at some point.)

ETA: I missed that you can't deduct the traditional IRA. That would make the 401k more attractive. Or possibly a Backdoor Roth if you don't already have a traditional IRA.
Last edited by IowaFarmBoy on Tue Apr 02, 2024 9:51 am, edited 1 time in total.
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retiredjg
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Re: Are Traditional IRA's Out of Vogue ?

Post by retiredjg »

Fillmore wrote: Mon Apr 01, 2024 5:57 pm Thank you, I will NOT be able to take a deduction on a Traditional IRA.
Then there is no reason to contribute to tIRA if you can contribute to Roth IRA. Can you?

Like others said, the 401k is the place to increase your tax-deferred account. Is yours so bad that it is not worth using?
sc9182
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Re: Are Traditional IRA's Out of Vogue ?

Post by sc9182 »

Love ❤️ our 401k - it’s choices: Tax-deferred, Roth, after-tax/MBR, i think catch-up contribution option is available as well.

Also like decent very-low-cost funds-choices available there-in. What NOT to like !!

(sure - you can’t deduct large chunks of taxes like Real-estate., but remember the taxes will be due eventually after many 1031 exchanges. It a wet-dream to pass/die holding low-cost rental real-estate and try to evaporate accumulated depreciation- than reality .. but it can be done)

If you are willing to take the midnight-call for broken commode or light-bulb at age 75+ sure ., it must be your cup of tea!! Once you engage property management- decent chunk of returns (and increased/higher repair costs) will eat away into real-estate returns.

Every now and then you when leverage in illiquid realestate blows up - one can simply go broke and file bankruptcy. Yet to see someone filing bankruptcy due to 401k !!
toddthebod
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Re: Are Traditional IRA's Out of Vogue ?

Post by toddthebod »

Most people would prefer to contribute to a Roth in the 12% bracket. A single person maxing out their 401(k) will only be able to fully deduct a traditional IRA contribution in the 22% bracket if their gross income is between $85,000 and $125,000. That's a pretty narrow range. On top of that, I don't know many people with gross incomes in that range who can afford to save $30,000 for retirement. That leaves a small number of people who have access to a 401(k) for whom a deductible traditional IRA contribution is a good idea.
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