- My Forums
- Tiger Rant
- LSU Recruiting
- SEC Rant
- Saints Talk
- Pelicans Talk
- More Sports Board
- Fantasy Sports
- Golf Board
- Soccer Board
- O-T Lounge
- Tech Board
- Home/Garden Board
- Outdoor Board
- Health/Fitness Board
- Movie/TV Board
- Book Board
- Music Board
- Political Talk
- Money Talk
- Fark Board
- Gaming Board
- Travel Board
- Food/Drink Board
- Ticket Exchange
- TD Help Board
Customize My Forums- View All Forums
- Show Left Links
- Topic Sort Options
- Trending Topics
- Recent Topics
- Active Topics
Started By
Message
re: I don't understand the love for Roth IRAs
Posted on 3/27/23 at 6:30 am to Im4datigers
Posted on 3/27/23 at 6:30 am to Im4datigers
quote:
Big assumption that somebody making great money isn’t going to 100% have a different lifestyle in retirement. Yes that is a general statement as some have a lifestyle they currently support through debt and probably won’t adjust in retirement but a lot of us will make huge adjustments (not sacrifices) in retirement.
I concur with this statement. We made big money (my wife way more than me) during our peak earning years. 30k a month was normal for a decade or so. Yes we had some expensive tastes (beautiful house in the city, private school for our 2 sons, chunky travel, luxury cars etc) but we saved and invested diligently. We set a number of 100k/year income requirement for retirement because it was a round number. Unfortunately she passed 3 years ago, I retired then because I had enough to meet the number and now spend well under the 100k annually.
1
Posted on 3/27/23 at 6:49 am to UpstairsComputer
quote:
Bruh, you saying you can name one couple making $30k a month now that’s gonna be cool living on 6k a month in retirement? Let’s say they spend 7k a month… that’s 22% and only a 10% spread. Which, by the way, would have been 25% just a few years ago… so let’s call it a 7% spread. See where I’m going with this yet? Now add the 50T in debt in the proposed budget from like a week ago. All good I guess.
Sigh.
IRA/401k savings are at the highest margins rate. The distributions in retirement often span brackets and carry a much lower effective rate. It’s not as simple as staring at a marginal rate chart.
This post was edited on 3/27/23 at 6:50 am
Posted on 3/27/23 at 7:05 am to thelawnwranglers
Some European taxpayers are paying nearly 60% tax rates.
We think were paying high taxes now..
We think were paying high taxes now..
Posted on 3/27/23 at 8:02 am to slackster
I was responding in kind to the original comment. I even used the lower part of that bracket and the absolute highest of the 12%. I get effective tax rates, the point really had more to do with someone making 30k, even if they save or spend half of it on their kids, all of the sudden dropping down to 6k. Even without a mortgage.
Even in this miraculous scenario we're leaving out deductions and standard deductions (both of which put them even further into 32% bracket...).
Main point: tax rates don't have to shift that much to affect this fictitious couple.
Even in this miraculous scenario we're leaving out deductions and standard deductions (both of which put them even further into 32% bracket...).
Main point: tax rates don't have to shift that much to affect this fictitious couple.
Posted on 3/27/23 at 8:12 am to thelawnwranglers
You want at least 3 income streams in retirement. A Roth is just another stream to have. Too many people enter retirement with not enough funds then whine and cry about it. I'd rather have too much than not enough.
Posted on 3/27/23 at 8:49 am to ronricks
A couple more to consider:
1.) Roth lets you effectively invest more in retirement over time. Annual limits are the same for both before and after tax accounts. Assuming the same tax bracket now and the future, $22.5k/yr will net a bigger nest egg in retirement (i.e. both grow at the same rate and reach the same peak, but in the roth case, you've already paid the tax). Downside, you pay a lot more tax over time (but the same rate).
2.) It's a place to keep emergency funds. If you ever need it, knowing you only pay the 10% penalty on the growth is a benefit. Sure, there are better options for this, but head to head vs. traditional, Roth wins here.
1.) Roth lets you effectively invest more in retirement over time. Annual limits are the same for both before and after tax accounts. Assuming the same tax bracket now and the future, $22.5k/yr will net a bigger nest egg in retirement (i.e. both grow at the same rate and reach the same peak, but in the roth case, you've already paid the tax). Downside, you pay a lot more tax over time (but the same rate).
2.) It's a place to keep emergency funds. If you ever need it, knowing you only pay the 10% penalty on the growth is a benefit. Sure, there are better options for this, but head to head vs. traditional, Roth wins here.
Posted on 3/27/23 at 8:57 am to Newgene
Another option to consider is the state in which you are currently working. For example, MS does not charge a state income tax on retirement accounts. So, if you put your money in a traditional 401k, you skip the 5% state tax and never pay it again. Advantage - Traditional 401k (unfortunately, LA likely hurts you here)
Also, if you are transferred to a state with no state income tax, there would be less incentive to go after the traditional - Advantage - Roth
Where you live also impacts some other decisions. For example, if you live in LA, but get transferred to TX for a tax period, consider maxing out your Roth accounts and doing conversations while you're there.
Also, if you are transferred to a state with no state income tax, there would be less incentive to go after the traditional - Advantage - Roth
Where you live also impacts some other decisions. For example, if you live in LA, but get transferred to TX for a tax period, consider maxing out your Roth accounts and doing conversations while you're there.
Posted on 3/27/23 at 10:36 am to NBR_Exile
quote:
Unfortunately she passed 3 years ago, I retired then because I had enough to meet the number and now spend well under the 100k annually.
Sorry for the loss. Just goes to show although we have plans laid out, sometimes the big man upstairs has other plans. Glad to see you got to still got to retire on time etc.
Posted on 3/27/23 at 10:39 am to thelawnwranglers
quote:No RMD for Roth.
What am I missing
Posted on 3/27/23 at 11:03 am to Im4datigers
quote:
Sorry for the loss. Just goes to show although we have plans laid out, sometimes the big man upstairs has other plans. Glad to see you got to still got to retire on time etc.
Thanks. To be honest what put me over the number was her life insurance payout. Which is another reason to plan/prepare for anything.
Posted on 3/27/23 at 1:10 pm to thelawnwranglers
Oh I absolutely see the value in it and I encourage everyone to take full advantage of it while you can. It’s nice to have tax-free savings that you can take advantage of in retirement as part of a broader plan.
My beef is that it seems like I went from not being able to afford to max it out to no longer being able to qualify for it at all within a few years. It’s got such a low max, why not just extend it to anyone regardless of income?
My beef is that it seems like I went from not being able to afford to max it out to no longer being able to qualify for it at all within a few years. It’s got such a low max, why not just extend it to anyone regardless of income?
This post was edited on 3/27/23 at 1:12 pm
Posted on 3/27/23 at 3:13 pm to NBR_Exile
quote:
3. No RMD's for your beneficiaries like the Inherited IRA's ten year rule.
So your heirs do have to pull out all the money in 10 years, but there is no tax owed and no annual requirement.
So on Dec 31 of year 10, they have to take it all out.
Posted on 3/27/23 at 3:14 pm to ItzMe1972
quote:
My new CPA wanted to know the basis on my ROTH distribution "to possibly save me having to paying taxes!"
Uh....No. I don't have to pay any taxes. After checking, she concurred
While she may well be an idiot... she also could have been asking if there was a 5 year rule issue.
Posted on 3/27/23 at 3:22 pm to thelawnwranglers
quote:
1. I would rather get tax advantage now. Probably irrational but I don't trust future tax benefit.
2. I am at my highest earnings now and in theory will be lower bracket in retirement.
What am I missing
So a few things.
1) We don't know what future tax rates will be for certain. We know that rates are going up 1/1/26 if Congress does not act. They could. They could not. They could raise rates, They could lower rates. They could move to a flat tax. They could move to a national sales tax and get rid of income taxes completely.
Those all COULD happen. So, you have to try to take the best guesses you can at what actually WILL happen, and plan aroud that.
Most people believe the marginal tax rates will be higher in the future than they are today. That doesn't mean your individual rate will be higher... it's all about your future income strams and brackets.
2) Remember it's not just the rate, it's the rate and the balance.
Consider $7K today that grows to $35K in 20 years, and you take out all $35K as a distribution in 20 years today.
Roth Today: Pay say 32% tax on $7K. Pay nothing in future.
Traditional Today: Pay nothing. Pay say 20% (say 12% rate goes to 20%) tax on $35K in 20 years.
Generally speaking, the longer term time horizon you have, the better a Roth looks.
Generally speaking, the higher you think your tax rate will be in the future, the better a Roth looks.
But like any strategy, it's a tool in a toolbox... not sutitable for every situation. People who say you should always do a Roth or should never do a Roth, are both stupid.
Posted on 3/27/23 at 4:21 pm to Niner
quote:
Consider, too, a taxpayer in the 32% bracket now then 12% in retirement. Even for folks who believe tax rates will go up, I would be willing to bet most of them don't think a retiree's tax bracket is going to increase 20%. Yes - it absolutely could. Likely? No. Certainly not likely enough to bypass a tax deduction today.
This is decent statistical analysis, for sure, but we have to assume this is as low as rates will be for the next 25 to 30 years. And they could rise sharply, especially for the upper middle class. I'm fine paying the taxes today. I project quite a bit of passive income in retirement, so I want to keep what comes out of my 401k as low tax as possible. If there is some "bipartisan" tax bill that bumps rates up, I'll reconsider some of my Roth contributions at that time.
I may be older than some of you baws, but I can remember (at least as a kid/teenager) marginal rates of 70%.
Posted on 3/27/23 at 5:31 pm to UpstairsComputer
quote:
Main point: tax rates don't have to shift that much to affect this fictitious couple.
But they kinda do, and they have a long track record of going down for those in this retirement scenario.
This might be the best way to put it into perspective - a 65 year old couple currently needs an AGI of $454,000 to have an effective rate of 22%, so for all of you in the 22%+ marginal rate, save in traditional IRA/401ks first.
Posted on 3/27/23 at 5:34 pm to fallguy_1978
Taxes will most likely be higher in the future than they are now. Potentially way higher but who knows.
When you have 500k in a Roth you can be reasonably certain that you have that much money. How much will 500k be worth to you in an IRA in 25 years
---------------------------------
Disagree. My wife & I both have a Roth, but who is to say the democrats/politicians won't decide to change the law to be able to tax a Roth? This is not an impossibility. My vote is to take the tax break now (in a 401k) as much as i can afford, if I have extra cash I will stick that in a Roth IRA.
When you have 500k in a Roth you can be reasonably certain that you have that much money. How much will 500k be worth to you in an IRA in 25 years
---------------------------------
Disagree. My wife & I both have a Roth, but who is to say the democrats/politicians won't decide to change the law to be able to tax a Roth? This is not an impossibility. My vote is to take the tax break now (in a 401k) as much as i can afford, if I have extra cash I will stick that in a Roth IRA.
Posted on 3/27/23 at 5:36 pm to EFHogman
I don't think the US government will be able to legally tax as income the gains from Roth.
But I do believe that the US government can implement a sales tax (which effectively does the same thing without busting the promises made to Roth users).
But I do believe that the US government can implement a sales tax (which effectively does the same thing without busting the promises made to Roth users).
Posted on 3/27/23 at 5:55 pm to meansonny
Yeah I don’t get too caught up the Uncle Sam boogeyman that says taxes have to go up and/or Roths will get taxed one day. Retirees are basically untouchable from a tax standpoint since it’s political suicide to mess with them. See social security, for example.
Page 2 of 2
Popular
Back to top
Follow TigerDroppings for LSU Football News