re: Best retirement investment options if wife and I are already maxing 401k, IRAs?

quote:

---

I think 22% bracket is often better to shift to traditional contributions. Save 22% marginal now and at withdrwal you have to fill deductions, 19% and 12% bracket before first dollar is taxed at 22%. Even in likely event tax rates go up in future there likely will be signifigant room below 22%+ rate. The crux is effective s marginal tax rate and whether you anticipate signifigant other income sources at withdrawal (pension, rental income etc) that would consume deductions and low bracket space.
Even so, unlikely all withdrwals would fall above 22% for most people.

Wish I understood this sooner and made more traditional contributions myself. Even with a pension I have ample room for withdrwals before hitting 22% again.

---

Basically from what I've seen is Roth really only makeS alot of sense if you are young, in a 10 to 12% bracket, and will end up in a higher one later.

If you are 40ish like me and are probably just gonna to cruise right in the middle of a tax bracket as it goes up over the next 20 years and may end up in the same or a lower one in retirement... then traditonal makes more sense.

But I'm still learning all of this and wish I learned sooner too. I know I've got my daughter putting in a roth right now though at 20.

Sounds to me like you're analyzing it correctly. Only way I might consider any Roth conversion In your situation is if it was to make the mega backdoor Roth available.

Side note: While your 20 yr old is in a low bracket (12% and below) and you are helping them out with $ gifts in any way it might be worth considering gifting them appreciated shares from your taxable investments instead of cash. As I understand it they get your basis but since in low bracket pay zero long term capital gains. When my kids get older I figure I'll try if helping them w wedding, home, funding Roth etc. I'll just take the cash I would have given them and buy back shares at new higher basis. (someone please correct me if this tactic doesn't work like i think)

quote:

---

Don't overlook the HSA. Contributions are tax deductible, withdrawals are tax free for health related expenses and earnings are tax free(once you get to a certain amount(usually between $1-2K), anything additional can be invested pre-tax.)

You can use it to pay anytime for anything healthcare related up to 65. After that, you can use it for anything, not just healthcare, although it will be taxed similar to a 401k. It's a great way to build a pretty big nest egg for health expenses later in life, and if you don't need it for that(you probably will), it functions like a normal investment option.

I've read stories about people that will invest in an HSA and let it grow and grow. All the while they've been paying out of pocket for health costs and letting their HSA investment grow, then they reimburse themselves years later since there's no time limit on reimbursements. You have to keep pretty meticulous records/receipts, but it can be done.

---

Yeah, I plan to look at that when I get the details on it. I don't know a lot about it yet.

There is some value to a Roth over and above just the simple tax calculation. The Roth does not require RMD's. In a Roth IRA (not 401K) you can get your contributions out penalty free at any time. You can get Roth conversions out after 5 years.

If you retire early, before you are eligible for Medicare, and you use Obamacare, you might be able to use your Roth assets (contributions plus conversions) to keep your MAGI low enough to get a free ride on Obamacare (not that I know anyone actually doing that).

You could also use a Roth ladder to save up enough to bridge between early and full retirement, or pay off the house, or buy a boat or something.

In retirement, if you have big expenses, like a new roof or a Slovenian Girlfriend, a Roth might keep you from jumping up to a higher bracket. No big deal in the 22%/24% bracket, but a significant bump in the 12%/22% bracket.

So, it would seem reasonable to do at least some Roth, maybe enough to give you flexibility for a new truck every ten years or something without upsetting your tax situation.

Also, if your employer allows after tax contributions to your 401K, which you can do after maxing out your deferred contributions, you can sometimes convert them painlessly to a Roth, especially if your employer has the Roth 401K option. If he doesn't, it's usually not painless.

Other things might be that if you manage it properly, you would be able to painlessly raid your Roth to pay for college and weddings if those are in your future.

Lastly, if he wants you back that bad, calculate the benefit of all this stuff and put it on paper and tell him you want enough to get all those benefits plus the lifestyle upgrade he has already offered.

I am with you on the tax math. If you are going to be in the same or lower tax bracket, the tax benefits don't matter, but I still think even people like you should consider a plan that is say 80% deferred/20% Roth just to have that flexibility.

I regret not putting more funds in Roth back in the lower tax bracket days. With 20+ years to accumulate earnings and only being in the 22% bracket currently, I would fund Roth. The tax savings is significant. It has been for me. I retired from my day job 7 years ago, but my income has stayed high. I am a buy and hold guy, and have been fortunate. It could happen for the OP as well. I think we all generally expect tax rates to increase over time, so that factors in.

Generally speaking, many of us have more investment income in retirement than we expected to have during our younger years.