Roth or not?

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BirdFood
Posts: 493
Joined: Sat Mar 23, 2024 12:15 pm

Re: Roth or not?

Post by BirdFood »

BettyBon wrote: Mon Jun 10, 2024 8:27 pm I've read all of your responses. Thank you!
So I should cancel the Roth I just started and continue doing pre-tax, correct?
Depending on how you feel about stray accounts floating around, you could put the absolute minimum in it and let it start aging toward the five-year rule. That way if you DO decide next year that you want to contribute to it, you can turn around and pull the money and earnings out as soon as, I think, January 1, 2029.

But, yes, the account would most likely end up being financial clutter.
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FiveK
Posts: 16174
Joined: Sun Mar 16, 2014 2:43 pm

Re: Roth or not?

Post by FiveK »

BettyBon wrote: Sun Jun 09, 2024 8:22 pm I'm embarrassed at how uneducated I am with my retirement savings and giving you incorrect (guesstimate) and incomplete info. My sincere apologies.

I'm amazed and grateful that so many Bogleheads take the time to respond, share their expertise, and help educate people like me. Thank you!
Do understand that none of the responders knew any of this until someone taught us as well, so welcome to the club! :)
I do have a small pension...left untouched....

The social security statement I printed in January shows monthly retirement benefits of....
At a quick glance it seems a coin flip between the monthly and lump sum pension choices. For reasons similar to the SS reasoning given below, you might want to defer the pension to age 65.
I pulled my taxes from last year...

$108,176 Federal adjusted gross income
$94,326 Federal taxable income
$93,523 State taxable income
$123,182 Gross wages (W-2)
$ 98,851 Wages (W-2)
$120,245 (Social Security/medicare wages, W-2)
Thanks, that all makes sense - with the assumption that you have $9325 of non-W2 income. How much of that comes from a side job vs. interest, short term capital gains, and non-qualified dividends vs. qualified dividends and long term capital gains will have some bearing on what might be best for your traditional vs. Roth choice now. Can you comment on that?

Due to the way Taxation of Social Security benefits works, you could be hit with some high marginal tax rates after you start taking SS. The years between when you stop work and start taking SS will be the most favorable for you to do Roth conversions.
I need to decide whether to leave the following "as is" or after reading some of your comments, I'm assuming I should cancel the Roth?

$447,000 in FXIFX (0.12 expense ratio, rollover IRA, no contributions being made, this is what the terminated financial advisor was managing)

$110,000 in FID FRDM BLND 2030 T (0.20 expense ratio, target fund offered by employer since they don't offer the FXIFX, 19% taken out each paycheck with 9% of that going to new Roth I just opened a couple weeks ago
The expense ratios are decent. Currently FXIFX is about 60/40 stock/bond but will (as all target date funds do) switch to a much more conservative allocation over the next several years. Do you have a target overall Asset allocation?
As clueless as I am, once I'm closer to retirement, I will probably hire a CPA or advisor at an hourly rate to walk me through tax implications, distributions, etc.....
If that person can generate charts similar to this annotated chart, that could be worthwhile. Otherwise you may want/have to learn this yourself. ;)

To your main question: at this point, depending on what assumptions are used, you could justify making either traditional or Roth contributions now. Thus you could flip a coin for which way to go 100%, do 50/50, or sharpen your pencil spreadsheet skills to make a more educated guess.

The good news is that whatever you do with regards to traditional vs. Roth over the next 5 years or so is unlikely to make a significant impact on the quality of your post-retirement life. :)
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