Tax Deferred : Taxable : Tax Free

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yogesh
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Re: Tax Deferred : Taxable : Tax Free

Post by yogesh » Sat Nov 16, 2019 10:33 am

45:40:15
Emergency: FDIC | Taxable: VTMFX | Retirement: TR2040

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willthrill81
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Re: Tax Deferred : Taxable : Tax Free

Post by willthrill81 » Sat Nov 16, 2019 10:55 am

celia wrote:
Sat Nov 16, 2019 1:44 am
willthrill81 wrote:
Sat Nov 16, 2019 1:20 am
I haven't read your 'Roth conversion posts', but I'm assuming that you must be filling up at least the standard deduction and 10% brackets, and likely some of the 12% bracket, with Social Security benefits at this point. I don't see any other way that this approach would come out ahead over one's lifetime mathematically, though it would certainly be an effective safeguard against rising tax rates in the future.
We both had pensions starting when we retired. We filed and suspended for SS at FRA and one of us took 1/2 of the other person's SS. At age 70, we both started the max benefits we were eligible for. Our pensions and SS alone put us in the 22% bracket. I'm glad we were able to use the pre-SS years to do lots of Roth conversions.

I also took advantage of the 2008 market crash to convert a lot of stock funds at a bargain rate for taxes (since the converted amounts were half their usual price, so were the taxes). I was still working at that time and our taxes jumped a bit, but I considered that I was paying half the usual rate on the taxes since the stock funds rebounded the next year.
Makes sense. I figured it had to be something like that. Those are some nice pensions ya got there!
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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WoodSpinner
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Re: Tax Deferred : Taxable : Tax Free

Post by WoodSpinner » Sat Nov 16, 2019 11:28 am

Interesting question....

Tax Deferred: 97%
Taxable: 1%
Tax Free: 2%

Retired Jan2018 and have been doing Roth Conversions and spending down taxable — while really enjoying retirement.

WoodSpinner

MathWizard
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Re: Tax Deferred : Taxable : Tax Free

Post by MathWizard » Sat Nov 16, 2019 11:39 am

40:10:1

Tax advantaged is preferred, taxable is just savings for first tier EF.

401k/403bs have so much higher limits than Roth IRAs that even maxing Roth every year my kids weren't in college, Ang just putting 15% pay in tax deferred, I couldn't have a much better ratio.Roth401ks were only available to me once IRA limits were alreadt at 5K and my kids were in college, then I was in 25% bracket so Roth 401k made little sense.

Will convert during retirement an 70 when I take SS.



Roth's weren't available the first 10 years of retirement savings, and then has a 2K/yr max. Losing the first 10 yrs

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WoodSpinner
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Re: Tax Deferred : Taxable : Tax Free

Post by WoodSpinner » Sat Nov 16, 2019 11:42 am

celia wrote:
Sat Nov 16, 2019 1:10 am
3:43:54

Yep, that's correct. The majority of our assets are now in Roth. I'm a big believer in Roth conversions as those who read my Roth conversion posts know. I followed the advice I give others in mapping out our income for each year until we hit 72 before we even retired. Basically I did enough Roth conversions to keep us at the same Taxable Income each year and thus our taxes pretty much stayed the same during our early retirement years. At the time we retired, we were probably 25:15:60, but since then inherited some taxable money and a Traditional IRA, whose RMDs set us back in Roth conversions since the RMDs took up some of the space I originally had planned for Roth conversions.

We're now over 70.5 and QCDing the tax-deferred so it will be down to 0 in about 2 more years. Then our financial lives will be simpler, not having to think about RMDs. The rest of the portfolio grows more than the money we give away.

Yay... the plan worked!
My wife and I are some of the people your posts have helped. Thank you so much — truly some of the most important advice I have ever received.

WoodSpinner

RubyTuesday
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Re: Tax Deferred : Taxable : Tax Free

Post by RubyTuesday » Sat Nov 16, 2019 11:46 am

grabiner wrote:
Sat Nov 16, 2019 10:21 am

Snip snip
Wow, thank you for the comprehensive answer!
“Doing nothing is better than being busy doing nothing.” – Lao Tzu

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WoodSpinner
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Re: Tax Deferred : Taxable : Tax Free

Post by WoodSpinner » Sat Nov 16, 2019 11:49 am

MathWizard wrote:
Sat Nov 16, 2019 11:39 am
40:10:1

Tax advantaged is preferred, taxable is just savings for first tier EF.

401k/403bs have so much higher limits than Roth IRAs that even maxing Roth every year my kids weren't in college, Ang just putting 15% pay in tax deferred, I couldn't have a much better ratio.Roth401ks were only available to me once IRA limits were alreadt at 5K and my kids were in college, then I was in 25% bracket so Roth 401k made little sense.

Will convert during retirement an 70 when I take SS.



Roth's weren't available the first 10 years of retirement savings, and then has a 2K/yr max. Losing the first 10 yrs
Wondering if there is a typo? Shouldn’t they add to 100%? Or am I missing something?

WoodSpinner

Elena
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Re: Tax Deferred : Taxable : Tax Free

Post by Elena » Sat Nov 16, 2019 12:06 pm

Tax deferred: 48%
Taxable: 44%
Roth: 8%

Targeting FIRE to "eat" taxable first.

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ruralavalon
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Re: Tax Deferred : Taxable : Tax Free

Post by ruralavalon » Sat Nov 16, 2019 12:49 pm

WoodSpinner wrote:
Sat Nov 16, 2019 11:28 am
Interesting question....

Tax Deferred: 97%
Taxable: 1%
Tax Free: 2%

Retired Jan2018 and have been doing Roth Conversions and spending down taxable — while really enjoying retirement.

WoodSpinner
Good plan. That is what we did at first when I retired.

Glad you really enjoy retirement :) .
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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celia
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Re: Tax Deferred : Taxable : Tax Free

Post by celia » Sat Nov 16, 2019 12:53 pm

MathIsMyWayr wrote:
Sat Nov 16, 2019 9:21 am
I also took advantage of the 2008 market crash to convert a lot of stock funds at a bargain rate for taxes - I don't get this part. Why does the market condition matter at all? Don't you decide how much to convert to Roth? Since tax-deferred has a zero tax basis, only the absolute dollar amount matters. There is no gain or loss as far as tax is involved.
Here's how it worked. Let's say our regular tax rate while working in 2008 was at the top of the 25% bracket. [Tax brackets were 10%, 15%, 25%, 28%, 33%, 35% back then.] If we converted $50,000 (was worth $100K before the crash) and paid 28% + 10% CA on $50,000, that was the same as if we paid 14% + 5% on $100,000, which is what it was worth a year later after the market rebounded.

Of course, back then, we had the option of recharacterizing, which we also did somewhat when we reached the limit of what we could afford on extra taxes. When stocks were selling for 50% off, I consider that the Roth conversion taxes were also 50% off! :D Although you can no longer recharacterize, the tax rates now are more favorable (except for California :( ) .
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

sycamore
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Re: Tax Deferred : Taxable : Tax Free

Post by sycamore » Sat Nov 16, 2019 1:19 pm

35:45:20.

When I started investing, there was no tax-free option like Roth. Some of my jobs over the years didn't have a 401(k) or the like, and tax-deferred Traditional IRA had relatively low limits. So I ended up with more in taxable than I would've guessed as my younger self.

sycamore
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Re: Tax Deferred : Taxable : Tax Free

Post by sycamore » Sat Nov 16, 2019 1:26 pm

lakpr wrote:
Sun Nov 10, 2019 6:17 pm
babystep wrote:
Sun Nov 10, 2019 5:20 pm
lakpr,

Great analysis, very helpful. I am slightly confused.
Shouldn't the MFJ case be 79000- 24400. Similarly, single will use 12000 standard deduction.
If true it actually supports your point more.
@babystep,

Thank you! Note that the TCJA will expire at the end of 2025, and as things stand now, starting 2026 the tax rates and tax brackets (only the personal ones! Corporate tax cuts are supposedly permanent) will revert to 2017 levels. In 2017, there were no "standard deductions", only "standard exemptions" and they were only $12000 per married couple. That is why the figures I used were $12000 and $6800 (to the best of my recollection and I may have rounded slightly), not $24,400 and $12,200 respectively. The tax brackets also were much narrower.

Hope that explains.
Not to nitpick but the terminology used on the 1040 is "standard deduction" or "itemized deduction". I don't think we ever had "standard exemptions", just plain "exemptions", at least that's what my 2017 1040 line 42 says.

MathIsMyWayr
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Re: Tax Deferred : Taxable : Tax Free

Post by MathIsMyWayr » Sat Nov 16, 2019 1:27 pm

celia wrote:
Sat Nov 16, 2019 12:53 pm
MathIsMyWayr wrote:
Sat Nov 16, 2019 9:21 am
I also took advantage of the 2008 market crash to convert a lot of stock funds at a bargain rate for taxes - I don't get this part. Why does the market condition matter at all? Don't you decide how much to convert to Roth? Since tax-deferred has a zero tax basis, only the absolute dollar amount matters. There is no gain or loss as far as tax is involved.
Here's how it worked. Let's say our regular tax rate while working in 2008 was at the top of the 25% bracket. [Tax brackets were 10%, 15%, 25%, 28%, 33%, 35% back then.] If we converted $50,000 (was worth $100K before the crash) and paid 28% + 10% CA on $50,000, that was the same as if we paid 14% + 5% on $100,000, which is what it was worth a year later after the market rebounded.

Of course, back then, we had the option of recharacterizing, which we also did somewhat when we reached the limit of what we could afford on extra taxes. When stocks were selling for 50% off, I consider that the Roth conversion taxes were also 50% off! :D Although you can no longer recharacterize, the tax rates now are more favorable (except for California :( ) .
Well, if you decide to convert $10k this year, then you will convert $10k regardless how the market does. Will the market condition influence how much to convert? A conversion of $10k is a conversion of $10k. I agree that you want to convert during a market dip of a calendar year. If you have been waiting for a market dip and wait until the last day, do you forgo conversion this year if the market does not dip? We are not doing a mathematical exercise, but dealing with a practical matter. If the market really crashes and my IRA of $1MM drops down to $20k, I may convert them all and cross into a higher tax bracket and an IRMAA cliff. If Dec. 2018 repeats, it will be a difficult decision.

MathWizard
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Re: Tax Deferred : Taxable : Tax Free

Post by MathWizard » Sat Nov 16, 2019 1:30 pm

WoodSpinner wrote:
Sat Nov 16, 2019 11:49 am
MathWizard wrote:
Sat Nov 16, 2019 11:39 am
40:10:1

Tax advantaged is preferred, taxable is just savings for first tier EF.

401k/403bs have so much higher limits than Roth IRAs that even maxing Roth every year my kids weren't in college, Ang just putting 15% pay in tax deferred, I couldn't have a much better ratio.Roth401ks were only available to me once IRA limits were alreadt at 5K and my kids were in college, then I was in 25% bracket so Roth 401k made little sense.

Will convert during retirement an 70 when I take SS.



Roth's weren't available the first 10 years of retirement savings, and then has a 2K/yr max. Losing the first 10 yrs
Wondering if there is a typo? Shouldn’t they add to 100%? Or am I missing something?

WoodSpinner

They are just ratios, not percentages.

lakpr
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Re: Tax Deferred : Taxable : Tax Free

Post by lakpr » Sat Nov 16, 2019 1:47 pm

sycamore wrote:
Sat Nov 16, 2019 1:26 pm
lakpr wrote:
Sun Nov 10, 2019 6:17 pm
babystep wrote:
Sun Nov 10, 2019 5:20 pm
lakpr,

Great analysis, very helpful. I am slightly confused.
Shouldn't the MFJ case be 79000- 24400. Similarly, single will use 12000 standard deduction.
If true it actually supports your point more.
@babystep,

Thank you! Note that the TCJA will expire at the end of 2025, and as things stand now, starting 2026 the tax rates and tax brackets (only the personal ones! Corporate tax cuts are supposedly permanent) will revert to 2017 levels. In 2017, there were no "standard deductions", only "standard exemptions" and they were only $12000 per married couple. That is why the figures I used were $12000 and $6800 (to the best of my recollection and I may have rounded slightly), not $24,400 and $12,200 respectively. The tax brackets also were much narrower.

Hope that explains.
Not to nitpick but the terminology used on the 1040 is "standard deduction" or "itemized deduction". I don't think we ever had "standard exemptions", just plain "exemptions", at least that's what my 2017 1040 line 42 says.
agreed, it's "standard deduction" of $12,700 and "personal exemption" of $4050 each back in 2017. In my defense, I was typing the above reply up on a mobile while on commute back from office in a train .... going by strictly memory and not exact terminology.

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GerryL
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Re: Tax Deferred : Taxable : Tax Free

Post by GerryL » Sat Nov 16, 2019 1:57 pm

I picture my investments in rough blocks, not percentages.
IRA (tax-deferred) is 4 blocks.
Taxable is 2 blocks.
Roth (tax-free) is 1 block

So ratios are 4:2:1

Roth is smallest because that option was not available until I was almost 50. Stopped doing conversions when I realized that it really did not make economic sense. I will be reinvesting a portion of RMDs into taxable, which I have yet to touch. Wonder how long it will be before I have to revise my block picture.

BogleWogle
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Re: Tax Deferred : Taxable : Tax Free

Post by BogleWogle » Sat Nov 16, 2019 2:15 pm

43:41:16

Including HSA in the tax free bucket

Taxable is growing the fastest and will likely dwarf the other buckets if current contribution rates continue due to annual contribution limits.

smitcat
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Re: Tax Deferred : Taxable : Tax Free

Post by smitcat » Sat Nov 16, 2019 2:29 pm

willthrill81 wrote:
Sat Nov 16, 2019 1:17 am
92:0:8

By the time I retire, I expect that we'll be closer to 80:0:20 by doing Roth conversions of an old 401 rollover IRA between now and then. The plan is to continue doing Roth conversions until age 70, at which point I'd hope that we'll be around 65:0:35. We have lots of tax-advantaged space and no need whatsoever for taxable accounts.
"We have lots of tax-advantaged space and no need whatsoever for taxable accounts."
Interesting - other than 401K , 401K match, 401K catch up , HSA and 529 are there any other methods to increase tax advantaged space?

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willthrill81
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Re: Tax Deferred : Taxable : Tax Free

Post by willthrill81 » Sat Nov 16, 2019 3:04 pm

smitcat wrote:
Sat Nov 16, 2019 2:29 pm
willthrill81 wrote:
Sat Nov 16, 2019 1:17 am
92:0:8

By the time I retire, I expect that we'll be closer to 80:0:20 by doing Roth conversions of an old 401 rollover IRA between now and then. The plan is to continue doing Roth conversions until age 70, at which point I'd hope that we'll be around 65:0:35. We have lots of tax-advantaged space and no need whatsoever for taxable accounts.
"We have lots of tax-advantaged space and no need whatsoever for taxable accounts."
Interesting - other than 401K , 401K match, 401K catch up , HSA and 529 are there any other methods to increase tax advantaged space?
I'm blessed to have far more tax-advantaged space than most. I have a 401(a) plan where contributions on my part are mandatory; I put in 7.5%, and that's matched by my employer. (Since it's mandatory, those contributions don't count toward the overall limit on contributions to employer-sponsored tax-deferred plans, which is $56k for 2019.) I can then contribute $19k tax-deferred into a 401(k) plan. There is also a 457 plan with another $19k of available tax-advantaged space. Then there's the HSA's $7k space, plus Roth IRAs for myself and my spouse. Altogether, it's over 50% of my gross income, and our plan is to max out all that space once our mortgage is paid off in a few months in addition to doing Roth conversions of an old 401k rollover to the top of the 12% bracket.

And when I turn 50, the 401k mandatory contributions go up to 10% and are matched by my employer. Contribution limits on the elective 401(k) and 457 plans will also increase due to the catch-up provision.

The best that most folks can do is max out a 401(k), HSA, and IRA. In that situation, taxable accounts are often necessary for those with high savings rates.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

remomnyc
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Re: Tax Deferred : Taxable : Tax Free

Post by remomnyc » Sat Nov 16, 2019 3:09 pm

45: 55: <1%

When I was working I couldn't contribute to Roth and conversions didn't make sense in my tax bracket. I'm still struggling with whether or not Roth conversions make sense now that I'm retired.

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willthrill81
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Re: Tax Deferred : Taxable : Tax Free

Post by willthrill81 » Sat Nov 16, 2019 3:14 pm

remomnyc wrote:
Sat Nov 16, 2019 3:09 pm
45: 55: <1%

When I was working I couldn't contribute to Roth and conversions didn't make sense in my tax bracket. I'm still struggling with whether or not Roth conversions make sense now that I'm retired.
Unless you will have significant SS benefits and/or a big pension, Roth contributions are often inferior in terms of maximizing lifetime after-tax wealth to tax-deferred contributions under current tax law, especially if you're marginal bracket is currently high. But Roth obviously beats taxable.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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FiveK
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Re: Tax Deferred : Taxable : Tax Free

Post by FiveK » Sat Nov 16, 2019 3:54 pm

remomnyc wrote:
Sat Nov 16, 2019 3:09 pm
I'm still struggling with whether or not Roth conversions make sense now that I'm retired.
Roth conversions definitely make sense if the marginal rate you'll pay now is less than the marginal rate you (or your heirs) will pay later (e.g., due to RMDs).

They may make sense if the marginal rate you'll pay now is equal to or only a little higher than the marginal rate you (or your heirs) will pay later (e.g., due to RMDs) when one uses taxable funds to pay the tax on a conversion.. See that link for a couple of spreadsheets that can help define "a little higher."

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WoodSpinner
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Re: Tax Deferred : Taxable : Tax Free

Post by WoodSpinner » Sat Nov 16, 2019 3:58 pm

MathWizard wrote:
Sat Nov 16, 2019 1:30 pm
WoodSpinner wrote:
Sat Nov 16, 2019 11:49 am
MathWizard wrote:
Sat Nov 16, 2019 11:39 am
40:10:1

Tax advantaged is preferred, taxable is just savings for first tier EF.

401k/403bs have so much higher limits than Roth IRAs that even maxing Roth every year my kids weren't in college, Ang just putting 15% pay in tax deferred, I couldn't have a much better ratio.Roth401ks were only available to me once IRA limits were alreadt at 5K and my kids were in college, then I was in 25% bracket so Roth 401k made little sense.

Will convert during retirement an 70 when I take SS.



Roth's weren't available the first 10 years of retirement savings, and then has a 2K/yr max. Losing the first 10 yrs
Wondering if there is a typo? Shouldn’t they add to 100%? Or am I missing something?

WoodSpinner

They are just ratios, not percentages.
Ummm.. ok, but the rest of us are using percentages :beer

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celia
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Re: Tax Deferred : Taxable : Tax Free

Post by celia » Sat Nov 16, 2019 4:07 pm

MathIsMyWayr wrote:
Sat Nov 16, 2019 1:27 pm
If the market really crashes and my IRA of $1MM drops down to $20k, I may convert them all and cross into a higher tax bracket and an IRMAA cliff. If Dec. 2018 repeats, it will be a difficult decision.
A 98% drop (to $20K) is an easy decision. If your tax-deferred dropped in value to $20K and you then converted it, you would pay taxes on only an additional $20K (on top of other income). By my reasoning, you would have saved 98% of the Roth conversion taxes (assuming the portfolio returns to it's previous level). As long as I "recovered" from the market drop before it started going up again, I would convert that in a heartbeat. (Actually, I would have converted at 40% below the high point, again at 50%, again at 60%, then probably the rest at 70%.)

December 2018 levels were not enough of a drop for me. But if you were running out of low-income years to convert and you hadn't converted that year yet, then convert (just the same as if there wasn't a market drop).
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

niceguy7376
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Re: Tax Deferred : Taxable : Tax Free

Post by niceguy7376 » Sat Nov 16, 2019 4:08 pm

Ours is 70: 2.8: 27.2
With HSA added to Tax Free

MathWizard
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Re: Tax Deferred : Taxable : Tax Free

Post by MathWizard » Sat Nov 16, 2019 5:02 pm

WoodSpinner wrote:
Sat Nov 16, 2019 3:58 pm
MathWizard wrote:
Sat Nov 16, 2019 1:30 pm
WoodSpinner wrote:
Sat Nov 16, 2019 11:49 am
MathWizard wrote:
Sat Nov 16, 2019 11:39 am
40:10:1

Tax advantaged is preferred, taxable is just savings for first tier EF.

401k/403bs have so much higher limits than Roth IRAs that even maxing Roth every year my kids weren't in college, Ang just putting 15% pay in tax deferred, I couldn't have a much better ratio.Roth401ks were only available to me once IRA limits were alreadt at 5K and my kids were in college, then I was in 25% bracket so Roth 401k made little sense.

Will convert during retirement an 70 when I take SS.



Roth's weren't available the first 10 years of retirement savings, and then has a 2K/yr max. Losing the first 10 yrs
Wondering if there is a typo? Shouldn’t they add to 100%? Or am I missing something?

WoodSpinner

They are just ratios, not percentages.
Ummm.. ok, but the rest of us are using percentages :beer
Call me a rebel. :beer

dharrythomas
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Re: Tax Deferred : Taxable : Tax Free

Post by dharrythomas » Sat Nov 16, 2019 10:23 pm

30:30:40

We’ve put everything into Roth from the moment it became available in each account. The taxable account is mostly an inheritance. The Traditional is thanks to Jack Bogle and above trend returns in the markets during my investment life so far. We’ve been blessed.

TSP contributions to Roth, but at this point it adds 1.6% to Roth and 1.1% to traditional balances each year. Selling enough taxable each year to fund Roth IRAs. So the Roth % will grow and the others will shrink between now and retirement. Still debating some Roth conversions from traditional, I think I still want to work when I retire from this job. Army Reserve pension starts in 2 years, will then use that to fund Roths. Retire in 5 years, initial pensions will cover ~2/3 of current income, pension will bump at about 66 to cover 90% before SS.

House paid off, we’re coasting. ~73.8% equity with contributions and target date funds in traditional IRA and TSP lowering that % steadily. If I offset the equity risk with pensions, I’m well under 50% stock.

smitcat
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Re: Tax Deferred : Taxable : Tax Free

Post by smitcat » Sun Nov 17, 2019 8:22 am

willthrill81 wrote:
Sat Nov 16, 2019 3:04 pm
smitcat wrote:
Sat Nov 16, 2019 2:29 pm
willthrill81 wrote:
Sat Nov 16, 2019 1:17 am
92:0:8

By the time I retire, I expect that we'll be closer to 80:0:20 by doing Roth conversions of an old 401 rollover IRA between now and then. The plan is to continue doing Roth conversions until age 70, at which point I'd hope that we'll be around 65:0:35. We have lots of tax-advantaged space and no need whatsoever for taxable accounts.
"We have lots of tax-advantaged space and no need whatsoever for taxable accounts."
Interesting - other than 401K , 401K match, 401K catch up , HSA and 529 are there any other methods to increase tax advantaged space?
I'm blessed to have far more tax-advantaged space than most. I have a 401(a) plan where contributions on my part are mandatory; I put in 7.5%, and that's matched by my employer. (Since it's mandatory, those contributions don't count toward the overall limit on contributions to employer-sponsored tax-deferred plans, which is $56k for 2019.) I can then contribute $19k tax-deferred into a 401(k) plan. There is also a 457 plan with another $19k of available tax-advantaged space. Then there's the HSA's $7k space, plus Roth IRAs for myself and my spouse. Altogether, it's over 50% of my gross income, and our plan is to max out all that space once our mortgage is paid off in a few months in addition to doing Roth conversions of an old 401k rollover to the top of the 12% bracket.

And when I turn 50, the 401k mandatory contributions go up to 10% and are matched by my employer. Contribution limits on the elective 401(k) and 457 plans will also increase due to the catch-up provision.

The best that most folks can do is max out a 401(k), HSA, and IRA. In that situation, taxable accounts are often necessary for those with high savings rates.
"The best that most folks can do is max out a 401(k), HSA, and IRA. In that situation, taxable accounts are often necessary for those with high savings rates."
Thanks - reading your initial post I thought we were missing something. We can get to about $70K per year but no higher really.

n00b
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Re: Tax Deferred : Taxable : Tax Free

Post by n00b » Sun Nov 17, 2019 9:04 am

56% Deferred
8% Taxable
36% Roth

We also contribute to pension plans.

Expecting to be in higher tax brackets later, I am eager to get underway with Roth conversions but unable to do so without leaving my employer.

Triple digit golfer
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Re: Tax Deferred : Taxable : Tax Free

Post by Triple digit golfer » Fri Nov 29, 2019 8:49 pm

lakpr wrote:
Sun Nov 10, 2019 2:34 pm
What is the absolute amount you have in your tax deferred accounts? If it is less than $1 million (approximately) I wouldn't bother with Roth conversions. The reasoning is that, with balances less than that threshold, even withdrawals twice the RMD size would only place you in the 15% bracket, and opting for Roth conversions now you are paying 22% tax rate.

RMD starts at 3.65% of tax deferred balance at age 70.5, on a balance of $1 million that is $36500. Twice that is $73000. If you look up the tax tables for 2017, for a couple, that $73k income places you in 15% bracket (don't forget to deduct approximately $12000 in standard exemptions).

Why would you want to pay 22% rate now (a decision that will be irrevocable, remember TCJA removed that option?) when you could be paying only 15% rate?
Does your $1 million rule of thumb apply to contributions too?

My wife is a stay at home mom and we use traditional IRA for her because it is deductible, and Roth for me because I have a workplace 401k. Would it be recommended to keep using traditional for her until approximately $1 million in total tax deferred, and then re-analyzing tax rates and all the other factors to determine whether to continue or switch to Roth or consider Roth conversions in a couple decades or in a down income year?

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FiveK
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Re: Tax Deferred : Taxable : Tax Free

Post by FiveK » Fri Nov 29, 2019 9:03 pm

Triple digit golfer wrote:
Fri Nov 29, 2019 8:49 pm
Would it be recommended to...analyz[e] tax rates and all the other factors to determine whether to continue or switch to Roth or consider Roth conversions in a couple decades or in a down income year?
As edited, yes.

See Traditional versus Roth - Bogleheads for details, but in general this all comes down to your marginal tax saving rate now for traditional contributions vs. what you expect it to be when withdrawing from traditional accounts.

Triple digit golfer
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Re: Tax Deferred : Taxable : Tax Free

Post by Triple digit golfer » Fri Nov 29, 2019 9:40 pm

FiveK wrote:
Fri Nov 29, 2019 9:03 pm
Triple digit golfer wrote:
Fri Nov 29, 2019 8:49 pm
Would it be recommended to...analyz[e] tax rates and all the other factors to determine whether to continue or switch to Roth or consider Roth conversions in a couple decades or in a down income year?
As edited, yes.

See Traditional versus Roth - Bogleheads for details, but in general this all comes down to your marginal tax saving rate now for traditional contributions vs. what you expect it to be when withdrawing from traditional accounts.
We're in the 22% bracket now. Max my 401k, Roth IRA, and her deductible traditional IRA, along with investing another $8k annually between a taxable amount and a 529 for our daughter.

I will not have a pension.

Trying to determine whether to use Roth or traditional for my wife. Leaning traditional but not certain.

lakpr
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Re: Tax Deferred : Taxable : Tax Free

Post by lakpr » Fri Nov 29, 2019 9:44 pm

Triple Digit Golfer,

Yes I would consider contributions as part of the thumb rule too. That said, I also will advise to accelerate Roth conversions in years where the stock market is faring badly. I missed Roth conversions last December when equities tanked 10% from their highs and I regret the lost opportunity.

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FiveK
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Re: Tax Deferred : Taxable : Tax Free

Post by FiveK » Fri Nov 29, 2019 11:16 pm

Triple digit golfer wrote:
Fri Nov 29, 2019 9:40 pm
We're in the 22% bracket now. Max my 401k, Roth IRA, and her deductible traditional IRA, along with investing another $8k annually between a taxable amount and a 529 for our daughter.

I will not have a pension.

Trying to determine whether to use Roth or traditional for my wife. Leaning traditional but not certain.
What is your best guess at the future marginal tax rate that will apply to any new traditional contributions?

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whodidntante
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Re: Tax Deferred : Taxable : Tax Free

Post by whodidntante » Fri Nov 29, 2019 11:21 pm

55% : 30% : 15%
Someone has to pay taxes while y'all are retired. :happy

marcopolo
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Re: Tax Deferred : Taxable : Tax Free

Post by marcopolo » Fri Nov 29, 2019 11:38 pm

whodidntante wrote:
Fri Nov 29, 2019 11:21 pm
55% : 30% : 15%
Someone has to pay taxes while y'all are retired. :happy
Greatly appreciated! :beer

45:45:10
Once in a while you get shown the light, in the strangest of places if you look at it right.

Triple digit golfer
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Re: Tax Deferred : Taxable : Tax Free

Post by Triple digit golfer » Sat Nov 30, 2019 6:26 am

lakpr wrote:
Fri Nov 29, 2019 9:44 pm
Triple Digit Golfer,

Yes I would consider contributions as part of the thumb rule too. That said, I also will advise to accelerate Roth conversions in years where the stock market is faring badly. I missed Roth conversions last December when equities tanked 10% from their highs and I regret the lost opportunity.
Thank you. What's the connection between market performance and conversions?

Triple digit golfer
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Re: Tax Deferred : Taxable : Tax Free

Post by Triple digit golfer » Sat Nov 30, 2019 6:38 am

FiveK wrote:
Fri Nov 29, 2019 11:16 pm
Triple digit golfer wrote:
Fri Nov 29, 2019 9:40 pm
We're in the 22% bracket now. Max my 401k, Roth IRA, and her deductible traditional IRA, along with investing another $8k annually between a taxable amount and a 529 for our daughter.

I will not have a pension.

Trying to determine whether to use Roth or traditional for my wife. Leaning traditional but not certain.
What is your best guess at the future marginal tax rate that will apply to any new traditional contributions?
Using today's tax laws, 12% or possibly 22%. We have $225k in taxable, $140k in Roths and $390k in tax deferred. Still adding to taxable and at least one Roth a combined $11-12k annually.

Current portfolio is approximately 50:30:20 deferred:taxable:Roth.

I'm concerned about future tax rate increases, but with a significant taxable and tax free balance already, I should be able to manage my tax deferred withdrawals along with those to stay in a low bracket. Possibly do Roth conversions in years before taking SS too.

We're 34 now, looking to retire potentially at 55.

I'm leaning toward leaving my wife's IRA contributions as traditional.

lakpr
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Re: Tax Deferred : Taxable : Tax Free

Post by lakpr » Sat Nov 30, 2019 7:11 am

Triple digit golfer wrote:
Sat Nov 30, 2019 6:26 am
lakpr wrote:
Fri Nov 29, 2019 9:44 pm
Triple Digit Golfer,

Yes I would consider contributions as part of the thumb rule too. That said, I also will advise to accelerate Roth conversions in years where the stock market is faring badly. I missed Roth conversions last December when equities tanked 10% from their highs and I regret the lost opportunity.
Thank you. What's the connection between market performance and conversions?
That I could have the future growth tax free. At a cheaper cost. Between last year Dec and now, stocks returned 25%. I could have had all that 25% growth as tax free.

I didn't totally miss the opportunity though, I rebalanced at that time as the loss threw my asset allocation to 62:38, far from my desired 70:30 allocation, and tripped my rebalance trigger. I could have done Roth conversion at that time, instead I just rebalanced within 401k. My Roth IRA already is/was 100% VTSAX.

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ruralavalon
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Re: Tax Deferred : Taxable : Tax Free

Post by ruralavalon » Sat Nov 30, 2019 9:26 am

Triple digit golfer wrote:
Sat Nov 30, 2019 6:38 am
FiveK wrote:
Fri Nov 29, 2019 11:16 pm
Triple digit golfer wrote:
Fri Nov 29, 2019 9:40 pm
We're in the 22% bracket now. Max my 401k, Roth IRA, and her deductible traditional IRA, along with investing another $8k annually between a taxable amount and a 529 for our daughter.

I will not have a pension.

Trying to determine whether to use Roth or traditional for my wife. Leaning traditional but not certain.
What is your best guess at the future marginal tax rate that will apply to any new traditional contributions?
Using today's tax laws, 12% or possibly 22%. We have $225k in taxable, $140k in Roths and $390k in tax deferred. Still adding to taxable and at least one Roth a combined $11-12k annually.

Current portfolio is approximately 50:30:20 deferred:taxable:Roth.

I'm concerned about future tax rate increases, but with a significant taxable and tax free balance already, I should be able to manage my tax deferred withdrawals along with those to stay in a low bracket. Possibly do Roth conversions in years before taking SS too.

We're 34 now, looking to retire potentially at 55.

I'm leaning toward leaving my wife's IRA contributions as traditional.
I believe that you are leaning on the right direction.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

lakpr
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Re: Tax Deferred : Taxable : Tax Free

Post by lakpr » Sat Nov 30, 2019 11:52 am

ruralavalon wrote:
Sat Nov 30, 2019 9:26 am
Triple digit golfer wrote:
Sat Nov 30, 2019 6:38 am
FiveK wrote:
Fri Nov 29, 2019 11:16 pm
Triple digit golfer wrote:
Fri Nov 29, 2019 9:40 pm
We're in the 22% bracket now. Max my 401k, Roth IRA, and her deductible traditional IRA, along with investing another $8k annually between a taxable amount and a 529 for our daughter.

I will not have a pension.

Trying to determine whether to use Roth or traditional for my wife. Leaning traditional but not certain.
What is your best guess at the future marginal tax rate that will apply to any new traditional contributions?
Using today's tax laws, 12% or possibly 22%. We have $225k in taxable, $140k in Roths and $390k in tax deferred. Still adding to taxable and at least one Roth a combined $11-12k annually.

Current portfolio is approximately 50:30:20 deferred:taxable:Roth.

I'm concerned about future tax rate increases, but with a significant taxable and tax free balance already, I should be able to manage my tax deferred withdrawals along with those to stay in a low bracket. Possibly do Roth conversions in years before taking SS too.

We're 34 now, looking to retire potentially at 55.

I'm leaning toward leaving my wife's IRA contributions as traditional.
I believe that you are leaning on the right direction.
I disagree slightly. Your wife’s IRA should be Roth. I think you said you are a single earner, and with 401k plan contributions your W2 income would less than 123k, and therefore eligible for making Traditional IRA contribution yourself. Every couple of years, roll that balance in to your 401k plan to get ERISA creditor protections on that money.

If I was wrong about your income level, ignore the above suggestions.

Triple digit golfer
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Re: Tax Deferred : Taxable : Tax Free

Post by Triple digit golfer » Sat Nov 30, 2019 11:57 am

lakpr wrote:
Sat Nov 30, 2019 11:52 am
ruralavalon wrote:
Sat Nov 30, 2019 9:26 am
Triple digit golfer wrote:
Sat Nov 30, 2019 6:38 am
FiveK wrote:
Fri Nov 29, 2019 11:16 pm
Triple digit golfer wrote:
Fri Nov 29, 2019 9:40 pm
We're in the 22% bracket now. Max my 401k, Roth IRA, and her deductible traditional IRA, along with investing another $8k annually between a taxable amount and a 529 for our daughter.

I will not have a pension.

Trying to determine whether to use Roth or traditional for my wife. Leaning traditional but not certain.
What is your best guess at the future marginal tax rate that will apply to any new traditional contributions?
Using today's tax laws, 12% or possibly 22%. We have $225k in taxable, $140k in Roths and $390k in tax deferred. Still adding to taxable and at least one Roth a combined $11-12k annually.

Current portfolio is approximately 50:30:20 deferred:taxable:Roth.

I'm concerned about future tax rate increases, but with a significant taxable and tax free balance already, I should be able to manage my tax deferred withdrawals along with those to stay in a low bracket. Possibly do Roth conversions in years before taking SS too.

We're 34 now, looking to retire potentially at 55.

I'm leaning toward leaving my wife's IRA contributions as traditional.
I believe that you are leaning on the right direction.
I disagree slightly. Your wife’s IRA should be Roth. I think you said you are a single earner, and with 401k plan contributions your W2 income would less than 123k, and therefore eligible for making Traditional IRA contribution yourself. Every couple of years, roll that balance in to your 401k plan to get ERISA creditor protections on that money.

If I was wrong about your income level, ignore the above suggestions.
AGI is $142k. I am not eligible, I believe. MFJ status.

McDougal
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Re: Tax Deferred : Taxable : Tax Free

Post by McDougal » Sat Nov 30, 2019 5:11 pm

I was embarrassed to post my numbers until I saw Willthrill's and Woodspinner's numbers. I am age 64, MFJ, 1-2 years from retiring (thanks you two!)

99+% : <1% : 0%

MichDad
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Re: Tax Deferred : Taxable : Tax Free

Post by MichDad » Sat Nov 30, 2019 6:04 pm

50:5:45

I'm retired and 64 years old. It's my hope/goal to reduce the tax deferred number by about 5 percent and increase the tax free number by about 5 percent each year until I turn 70. After that, with the addition of maximum Social Security benefits, I'll continue to convert tax deferred to tax free but at a lower rate.

Fortunately, I've got a pension and rental income from which to pay the taxes due on Roth conversions.

MichDad

neilpilot
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Re: Tax Deferred : Taxable : Tax Free

Post by neilpilot » Sat Nov 30, 2019 7:33 pm

MathWizard wrote:
Sat Nov 16, 2019 5:02 pm
WoodSpinner wrote:
Sat Nov 16, 2019 3:58 pm
MathWizard wrote:
Sat Nov 16, 2019 1:30 pm
WoodSpinner wrote:
Sat Nov 16, 2019 11:49 am
MathWizard wrote:
Sat Nov 16, 2019 11:39 am
40:10:1

Tax advantaged is preferred, taxable is just savings for first tier EF.

401k/403bs have so much higher limits than Roth IRAs that even maxing Roth every year my kids weren't in college, Ang just putting 15% pay in tax deferred, I couldn't have a much better ratio.Roth401ks were only available to me once IRA limits were alreadt at 5K and my kids were in college, then I was in 25% bracket so Roth 401k made little sense.

Will convert during retirement an 70 when I take SS.



Roth's weren't available the first 10 years of retirement savings, and then has a 2K/yr max. Losing the first 10 yrs
Wondering if there is a typo? Shouldn’t they add to 100%? Or am I missing something?

WoodSpinner

They are just ratios, not percentages.
Ummm.. ok, but the rest of us are using percentages :beer
Call me a rebel. :beer
To placate those that expect percentages, if 40:10:1 are ratios than they translate to the following percentages: 78:20:2

Of course, MathWizard could correctly point out that those percentages are approximate. They are rounded to the nearest whole number. I'm certain, true to the OP's name, that the original ratios are way more precise. :beer

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billthecat
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Re: Tax Deferred : Taxable : Tax Free

Post by billthecat » Sat Nov 30, 2019 7:36 pm

13 : 82 : 5

Percentages, not ratios.
We cannot direct the winds but we can adjust our sails.

ByThePond
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Re: Tax Deferred : Taxable : Tax Free

Post by ByThePond » Sat Nov 30, 2019 8:42 pm

57 :18 : 25 We're in early retirement and doing Roth conversions. Deferred had been as high as 78% and is targeted to about 35% at age 72.

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FiveK
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Re: Tax Deferred : Taxable : Tax Free

Post by FiveK » Sat Nov 30, 2019 9:04 pm

Triple digit golfer wrote:
Sat Nov 30, 2019 6:38 am
FiveK wrote:
Fri Nov 29, 2019 11:16 pm
What is your best guess at the future marginal tax rate that will apply to any new traditional contributions?
Using today's tax laws, 12% or possibly 22%. We have $225k in taxable, $140k in Roths and $390k in tax deferred. Still adding to taxable and at least one Roth a combined $11-12k annually.
...
We're 34 now, looking to retire potentially at 55.

I'm leaning toward leaving my wife's IRA contributions as traditional.
Using all traditional now (provided the contribution is deductible) is reasonable, because it would take somewhere over 8%/yr real returns on the $390K to get you into the 22% bracket using 2019 brackets.

You can (and probably should) re-evaluate each year to account for any changes to tax law and your assumptions about investment returns and retirement age.

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zaboomafoozarg
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Re: Tax Deferred : Taxable : Tax Free

Post by zaboomafoozarg » Sat Nov 30, 2019 10:04 pm

44:36:20

Actually more taxable in there than I thought.

Now that I can do mega backdoor Roth IRA, it should overtake taxable eventually.

Ready3Retire
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Re: Tax Deferred : Taxable : Tax Free

Post by Ready3Retire » Sat Nov 30, 2019 10:28 pm

78% 12% 10%
Age 59. Planning to retire in a little over a year and will have pension (if I don't take the lump sum). I recently changed 401K contributions to be 1/2 401K and 1/2 Roth 401K and plan to continue until I retire. After I retire, I plan to do Roth conversions to top of 22% bracket.

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