Is It Ever Worthwhile to Use Traditional Over Roth If Pension?

[BizarroJerry]

Pretend one has a pension of say 50k coming, plus social security for both spouses totaling 30k. Between the two, that will eat up all the lower tax bands to where it almost makes sense to go full roth with ira and 401k if able to, since leveraging traditional to avoid lower taxes on the first several thousand would not be doable due to pension and social security taking up that range. Does this make sense to avoid traditional and go full roth if pension?

[furwut]

I’ve delayed my pension and social security to get a higher benefit. Currently I’m now converting/distributing from my traditional retirement account at a very favorable tax rate.

[Longdog]

Pretend one has a pension of say 50k coming, plus social security for both spouses totaling 30k. Between the two, that will eat up all the lower tax bands to where it almost makes sense to go full roth with ira and 401k if able to, since leveraging traditional to avoid lower taxes on the first several thousand would not be doable due to pension and social security taking up that range. Does this make sense to avoid traditional and go full roth if pension?

Possibly, but if you were to retire prior to taking your pension and social security, and you didn't have much in the way of distributions from taxable assets, then there could be an opportunity to convert some of the pre-tax dollars to Roth at a lower tax rate than when they were contributed.

[BizarroJerry]

Pretend one has a pension of say 50k coming, plus social security for both spouses totaling 30k. Between the two, that will eat up all the lower tax bands to where it almost makes sense to go full roth with ira and 401k if able to, since leveraging traditional to avoid lower taxes on the first several thousand would not be doable due to pension and social security taking up that range. Does this make sense to avoid traditional and go full roth if pension?

Possibly, but if you were to retire prior to taking your pension and social security, and you didn't have much in the way of distributions from taxable assets, then there could be an opportunity to convert some of the pre-tax dollars to Roth at a lower tax rate than when they were contributed.

Pretend you had to work to age 62 to be able to retire with full pension so once you retire you get the pension right away

[rkhusky]

The 12% bracket goes up to $123K for MFJ. If you would be paying 22%+ to put money into a Roth, it seems like you would still want some Traditional contributions. $30K SS + $50K pension still gives you plenty of room to do Roth conversions at 12%.

[BizarroJerry]

The 12% bracket goes up to $123K for MFJ. If you would be paying 22%+ to put money into a Roth, it seems like you would still want some Traditional contributions.

Would best bet then here be to split contributions between roth and traditional?

[rkhusky]

The 12% bracket goes up to $123K for MFJ. If you would be paying 22%+ to put money into a Roth, it seems like you would still want some Traditional contributions.

Would best bet then here be to split contributions between roth and traditional?

Perhaps Traditional 401K and Roth IRA for both.

See this heat map to see marginal tax rates with SS and other income:
https://www.bogleheads.org/w/images/6/6 ... FJ2023.png
From https://www.bogleheads.org/wiki/Taxatio ... y_benefits.

[JBTX]

As referenced above this heat map is informative.

https://www.bogleheads.org/w/images/6/6 ... FJ2023.png




Social security is taxed differently during retirement. It isn’t taxed after other income, it is taxed concurrently with other income in a range. For $30k social security the social security is taxed at other income (your pension ) range of $28k to $50k. At that point it is fully taxed. Above about $52k in other income (which roughly equals your pension income) you are in the 12% marginal rate up to over $100k of other income, which could be traditional IRA distributions. It is kind of a moving target as the social security tax ability thresholds do not adjust for inflation, plus tax laws change.

But given that I think it makes sense to have some traditional to fill up lower brackets, if the opportunity exists, which can be hard to predict.

[MnD]

I deferred everything at 31% or higher when working.
In retirement I have a pension that fills up 0%, 10% and some of 12%.
Spending from traditional is at a blend of 12% and 22%. Mostly 22%.

I have a somewhat higher financial standard of living in retirement versus working since taxes are lower and we aren't saving for retirement.
So to answer your question - absolutely in my case. Huge win for traditional versus Roth with a pension.

[smitcat]

Pretend one has a pension of say 50k coming, plus social security for both spouses totaling 30k. Between the two, that will eat up all the lower tax bands to where it almost makes sense to go full roth with ira and 401k if able to, since leveraging traditional to avoid lower taxes on the first several thousand would not be doable due to pension and social security taking up that range. Does this make sense to avoid traditional and go full roth if pension?

Need to run the numbers for your current and future plans - we helped our kids with a similar task and they are currently defferring only those funds at and above the 24% fed level , they also have state taxes.
Notes - they do not loose any matching if they do not use traditional, pension contributions lower taxable base, independent business expenses lower taxable base, future savings generate interest and divs which occupy various spaces.
Best to run your own numbers and goals to see a best plan for your situation.

[ScubaHogg]

The traditional advice is “if you will have a lower tax bracket in retirement go traditional deferred.” But no one talks about the asymmetry in “being wrong.”

I’ll have two pensions. Those plus social security means we will likely never not be in the 22% tax bracket. Currently I’m in the 24% bracket.

But I wonder that if I die early in retirement the pensions combined with RMDs will push my wife into the 32% bracket? Maybe? It might happen. Given the asymmetry between 24/22 and 24/32 I’m sometimes tempted to switch to all Roth. Or at least target much higher Roth balances than traditional deferred ones

[Chadnudj]

Pretend one has a pension of say 50k coming, plus social security for both spouses totaling 30k. Between the two, that will eat up all the lower tax bands to where it almost makes sense to go full roth with ira and 401k if able to, since leveraging traditional to avoid lower taxes on the first several thousand would not be doable due to pension and social security taking up that range. Does this make sense to avoid traditional and go full roth if pension?

Yes, it certainly may make sense, given the ability to do rollovers, etc. You just have to model it out for yourself.

But also keep in mind, a great and often overlooked advantage of traditional 401k accounts is that every paycheck, you end up with more take home pay than if you were contributing to a Roth 401k. You have to be able to enjoy life now AND enjoy a wonderful retirement. Part of my own personal preference on traditional 401k is that I want to build memories with my family/friends now, and not just when I retire (and by that point my kids will be on their own building their own lives anyways). Having a bit extra in my take home pay to throw at a dinner out, save for a vacation, or splurge on a round of golf/picking up a bar tab with a friend is a good thing.

You can't just focus everything on saving for retirement/FIRE. You need to enjoy a rich life (as Ramit Sethi might say) now, too.