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No, you probably pay federal and/or state INCOME TAXES on your pension (depending upon your un-earned income level and especially if your pension contributions were pre-tax, as most are). I can guarantee if you look at your 1099R you will not have witholdings for SS and medicare, as I originally stated.
Quote:
Only retirement income that is taxed (federal) is a traditional IRA.
Well why does everyone think that personal finance is one size fits all? So maybe I'm opposed to having a Roth IRA. Big deal. I don't mind paying tax on withdrawals from a 401k during my retirement years. It is what it is. You either pay the taxes now, or later. But if you defer the taxes, it allows your portfolio to have a higher balance on which growth can occur over the decades. Also, having a Roth IRA can substantially making living in your younger years more challenging, because of the taxed income on contributions to the Roth IRA. I don't know. I just didn't like it, so I closed it out and sold it all for cash so that I can buy a home soon.
I think I'm on track to a healthy retirement, if you ask me. I mean, even though I did some stupid things, and only have $12K saved up for retirement in a 401k, I am aiming for a total final 401k value of about $800K (today's dollars) and plan to live in retirement for 15 years. I hope that's good enough for a single old gay guy. Please tell me it is...
with retirement 9 months away from me at this point i can now see where i dropped the ball or could have done things better tax wise.
while roths did not exist for much of my 40 year working past they would have left me with a very different tax out come today if we did have them.
there are soooooo many advantages to the roth that are not even based on the fact that tax increases may be higher down the road. i have talked about this alot lately.
you pay regular tax rates up front going in the roth.
But many times those tax rates are far lower than your final tax rates at retirement as it takes decades of ramping up generally to those final levels.
Most youngins can do great with a roth since their lifetime average tax rate over their 40 working years will likely be lower than their final rate at retirement and that assumes rates do not even rise. That final rate rarely differs by much from the final years rates.
Starting young with roths has been shown in studies like the t.rowe price study to give you as much as 20% more spendable income in retirement just from the ramping up alone .not even considering taxes may be higher down the road..
Throw in the fact that at 70-1/2 all invested money from rmd's is taxed forever going forward. The roth still goes on tax free compounding gains.
If those rmd's get your ss taxed then the roth becomes priceless in that regard.
Especially if the rmd's and social security trigger the medicare surcharge.
These are all very powerful reasons for doing roths early on even if taxes are no higher decades later.
Last edited by mathjak107; 10-26-2014 at 02:20 PM..
Well why does everyone think that personal finance is one size fits all? So maybe I'm opposed to having a Roth IRA. Big deal. I don't mind paying tax on withdrawals from a 401k during my retirement years. It is what it is. You either pay the taxes now, or later. But if you defer the taxes, it allows your portfolio to have a higher balance on which growth can occur over the decades. Also, having a Roth IRA can substantially making living in your younger years more challenging, because of the taxed income on contributions to the Roth IRA. I don't know. I just didn't like it, so I closed it out and sold it all for cash so that I can buy a home soon.
I think I'm on track to a healthy retirement, if you ask me. I mean, even though I did some stupid things, and only have $12K saved up for retirement in a 401k, I am aiming for a total final 401k value of about $800K (today's dollars) and plan to live in retirement for 15 years. I hope that's good enough for a single old gay guy. Please tell me it is...
It wasn't intended as criticism, just curiosity as to your reasoning. Personal finance is not one size fits all.
My expectations of my tax situation are fairly non-standard, so it is always possible that this skews my opinion of Roths.
with retirement 9 months away from me at this point i can now see where i dropped the ball or could have done things better tax wise.
while roths did not exist for much of my 40 year working past they would have left me with a very different tax out come today if we did have them.
...
Same here, I retired ten years ago and a major budget item for me is income taxes on IRA withdrawals. I should have worried more about tax planning... both spouse and I have Roths but they are a small part of our savings.
Well why does everyone think that personal finance is one size fits all? So maybe I'm opposed to having a Roth IRA. Big deal. I don't mind paying tax on withdrawals from a 401k during my retirement years. It is what it is. You either pay the taxes now, or later. But if you defer the taxes, it allows your portfolio to have a higher balance on which growth can occur over the decades. Also, having a Roth IRA can substantially making living in your younger years more challenging, because of the taxed income on contributions to the Roth IRA. I don't know. I just didn't like it, so I closed it out and sold it all for cash so that I can buy a home soon.
I think I'm on track to a healthy retirement, if you ask me. I mean, even though I did some stupid things, and only have $12K saved up for retirement in a 401k, I am aiming for a total final 401k value of about $800K (today's dollars) and plan to live in retirement for 15 years. I hope that's good enough for a single old gay guy. Please tell me it is...
Its a zero sum game with 401K vs Roth
If you have a higher tax rate at retirement then a 401K wins otherwise a Roth wins its as simple as that
The fact is that 99% of people have a lower tax rate at retirement so 99% of us are better putting money in a 401K
had i known better ,today i could have pulled 100k plus and payed about 1800 bucks in federal tax.
but when we are yong we concentrate on growing the money and have no clue about the tax planning end.
since we only know what we know and we don't know a thing about what we don't know we see no reason to pay a planner for advice.
instead we seek free advice on our own.
well in the end of you think that planner was expensive ,wait until you see what free advice cost you.
I see the advantages of a Roth account and made sure it's a big part of our savings. But at this point I also recognize that you can have $50k p.a. in retirement income for a couple w/o paying materially in taxes as Soc Sec preffered tax treatment plus old age tax relief kick in. So my idea is to have the first 50k in taxable income and then supplement with Roth. To have 50k in taxable income in retirement is rare to begin with and most folks do not need to worry about taxes IMO.
If you have a higher tax rate at retirement then a 401K wins otherwise a Roth wins its as simple as that
The fact is that 99% of people have a lower tax rate at retirement so 99% of us are better putting money in a 401K
wrong , most folks have a higher lifetime average tax rate as they ramp up in income over a 30-40 year working career.
in fact even if tax rates stay the same most folks would have as much as 20% more spendable cash at retirement just because their tax rate in retirement will likely be higher than their life time average rate
writing off decades of traditional contributions at that lower average rate is less than the final highest years folks like to compare with. .
it is not about just comparing your last few highest income years to your retiremt tax rate.
according to t.rowes study it would take a 9% drop in average tax rate at retirement to equal the same thing with no changes.
zero sum my butt!
the effects of the rmd's alone make it not a zero sum . all gains are tax free after 70-1/2 on the roth while rmd money reinvested is taxed forever on gains and income.
get your ss taxed , or the medicare surcharge because your withdrawals and rmd's are taxed and and all added together and see how zero sum that is.
wrong , most folks have a higher lifetime average tax rate as they ramp up in income over a 30-40 year working career.
in fact even if tax rates stay the same most folks would have as much as 20% more spendable cash at retirement just because their tax rate in retirement will likely be higher than their life time average rate
writing off decades of traditional contributions at that lower average rate is less than the final highest years folks like to compare with. .
it is not about just comparing your last few highest income years to your retiremt tax rate.
according to t.rowes study it would take a 9% drop in average tax rate at retirement to equal the same thing with no changes.
zero sum my butt!
the effects of the rmd's alone make it not a zero sum . all gains are tax free after 70-1/2 on the roth while rmd money reinvested is taxed forever on gains and income.
get your ss taxed , or the medicare surcharge because your withdrawals and rmd's are taxed and and all added together and see how zero sum that is.
The RMD thing with the Roth sounds like a good thing, but when I'm living in retirement, there's a more likely than not chance that I will be in a LOWER tax bracket, because I am planning on living on a lower income than I am throughout my lifetime. Lower income means lower tax. Furthermore, the RMD's are actually pretty low for minimums. You're only required to withdraw at least 3.6% of the balance in the IRA/401k account each year. Big deal. I was planning to withdraw more like 7% per year anyway.
Roth IRA's are not perfect for everyone, but might be great for others.
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