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Old 02-12-2015, 06:27 PM
 
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Quote:
Originally Posted by cdelena View Post
Yes, the IRA became generally available in the early '80s and the Roth version not until the late 90's. Much of todays retirement savings could not be done in Roth accounts and conversion is a taxable event. 401K laws happened in about the same time frame.
Interesting. If the Traditional IRA came out first, why didn't it gain more popularity than the Roth IRA like the Traditional 401(k) against the Roth 401(k)?

The point about Roth IRA being a better choice for younger folks is certainly valid. But I feel like the Roth IRA is the IRA of choice for even older workers. Is this correct or is my observation not representative of the general population?
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Old 02-13-2015, 11:14 AM
 
Location: NY/LA
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Is there any data on the availability of Roth 401(k)s? My wife and I would love to contribute to a Roth 401(k) instead of a traditional 401(k), but that's not an option from either of our employers.
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Old 02-13-2015, 11:29 AM
 
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our company offers them but few take advantage . the big advantage is lost if you do not do it early on when young.
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Old 02-14-2015, 08:05 AM
 
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Quote:
Originally Posted by AmFest View Post
Interesting. If the Traditional IRA came out first, why didn't it gain more popularity than the Roth IRA like the Traditional 401(k) against the Roth 401(k)?

The point about Roth IRA being a better choice for younger folks is certainly valid. But I feel like the Roth IRA is the IRA of choice for even older workers. Is this correct or is my observation not representative of the general population?
Bump
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Old 02-14-2015, 08:21 AM
 
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The Roth IRA has supplanted the traditional IRA, but the Roth 401K remains an exotic rarity compared to the traditional 401K.

As someone pointed out earlier, Roth IRA has an eligibility cap (annual income). But this can be circumvented by funding a traditional IRA with post-tax money (up to $5500/year) and then rolling over the traditional IRA into the Roth. File a form 8086 to document the transfer.

Though I consider myself to be a fairly financially-savvy person, I hadn't even heard of the Roth 401K until last year! Have I made any changes? Not yet; I still cleave to the familiar traditional 401K. For tax purposes this can be foolish, depending on whether one's Adjusted Gross Income is higher or lower in retirement, than during one's career.
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Old 02-14-2015, 09:05 AM
 
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key word is just what you said . not just looking at the final years but in looking at your total career and the ramping up in tax brackets over possibly 40 years .

it is only by comparing against our long term average tax bracket do we know if we are in a higher bracket at retirement or a lower one.

folks make the mistake of looking only at their highest final years and going yep we will be in a lower bracket at retirement.

that may be wrong and they actually are in a higher bracket at retirement once they average out 40 working years of ramping up though the brackets.
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Old 02-14-2015, 10:37 AM
 
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My company doesn't offer any retirement benefits, so because I'm doing my retirement savings on my own and am still on the younger side, I chose a Roth IRA. I've never had a Roth 401(k) available at any of my workplaces. I suppose I should take a closer look at all the options out there, especially as it's possible that our workplace could begin eventually to offer some retirement plans.
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Old 02-17-2015, 05:23 PM
 
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Quote:
Originally Posted by mathjak107 View Post
key word is just what you said . not just looking at the final years but in looking at your total career and the ramping up in tax brackets over possibly 40 years .

it is only by comparing against our long term average tax bracket do we know if we are in a higher bracket at retirement or a lower one.

folks make the mistake of looking only at their highest final years and going yep we will be in a lower bracket at retirement.

that may be wrong and they actually are in a higher bracket at retirement once they average out 40 working years of ramping up though the brackets.
Do you care to elaborate? If I am 60 and in the 28% bracket, and I project my tax bracket at withdrawal to be 35%, why should I care what my tax bracket 35 years ago was? Sounds like I should definitely contribute Roth-style.
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Old 02-17-2015, 10:13 PM
 
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Quote:
Originally Posted by AmFest View Post
Do you care to elaborate? If I am 60 and in the 28% bracket, and I project my tax bracket at withdrawal to be 35%, why should I care what my tax bracket 35 years ago was? Sounds like I should definitely contribute Roth-style.
Your example is extremely unrealistic. Who goes from earning a max of (Individual) $190k year to withdrawing a minimum of $411k/year? (Note ahead of time: Married changes the numbers but the concept is the same.)

Your extreme tax rate change example aside... the general concept is that most people reduce their expenses after retiring, or at least are able to live on the same income. If you could live on $150k/year before, why does retiring suddenly cost twice as much? Sure, you'll probably take out a bit more early on for a retirement vacation or two, and maybe take a large withdrawal to move somewhere warmer, but for most people the day to day expenses go down.

Medical is the only cost that typically goes up in retirement, but a) insurance can mitigate a lot of that and b) after a point, it's tax deductible, so that's also cutting away at it.

So how are you suggesting you need twice as much money/year to live just because you stopped working?
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Old 02-17-2015, 10:34 PM
 
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Quote:
Originally Posted by Jeo123 View Post
Your example is extremely unrealistic. Who goes from earning a max of (Individual) $190k year to withdrawing a minimum of $411k/year? (Note ahead of time: Married changes the numbers but the concept is the same.)

Your extreme tax rate change example aside... the general concept is that most people reduce their expenses after retiring, or at least are able to live on the same income. If you could live on $150k/year before, why does retiring suddenly cost twice as much? Sure, you'll probably take out a bit more early on for a retirement vacation or two, and maybe take a large withdrawal to move somewhere warmer, but for most people the day to day expenses go down.

Medical is the only cost that typically goes up in retirement, but a) insurance can mitigate a lot of that and b) after a point, it's tax deductible, so that's also cutting away at it.

So how are you suggesting you need twice as much money/year to live just because you stopped working?
It is just an example. I could totally make up the tax brackets, or the local income taxes could bring about many different total income tax rates, but that's not the point. The question is: why would the tax brackets for earlier periods matter?

If you still want to discuss the reality of my example, let's just say I started investing at age 22 and maxed out my 401(k) and IRA every year, and also received very generous employer contributions to my 401(k) every year. I also invested in the most aggressive manner. Combine all these and I end up with 20 million dollars at age 65. From age 60 to age 65, I wanted to explore a different career path and got a huge pay cut as a result. I also want to withdraw all my money before I die, so I withdraw 500k per year. Does this work? Don't judge me. This is purely hypothetical.
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