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That IS a good point. Having $500k in retirement savings all in a tax deferred 401k is worth $50k less than the same account where $200k of it is in a Roth. I KNOW that also means that the Roth person should theoretically have $550000.
That IS a good point. Having $500k in retirement savings all in a tax deferred 401k is worth $50k less than the same account where $200k of it is in a Roth. I KNOW that also means that the Roth person should theoretically have $550000.
Yes but keep in mind if you are talking about a 401 you will be contributing more on a weekly basis with a traditional over a Roth, obviously. So at the end of the line your balance will be significantly higher with a traditional 401 over a Roth.
Yes, thats why I said, theoretically, the Roth person would have maybe $550000, actually, much less if he made the contributions to the Roth at a lower than 25% effective rate, which would be typical, all things being equal, if he had contributed what he did on the Roth, to a 401k.
However, I know if I had to choose between the two at age 65, say $540k in a 401k or $300k in a 401k with an additional $200k in a Roth, I'd choose the Roth every time. While you only lose $10k in taxes on the $40k extra, it doesn't take long in tax savings to recover the other $30k if you have a high fixed income due to pensions and other after tax income, by lowering your RMDs that could bump you into higher brackets, of if you make a large cash purchase. Plus its the better of the two to leave as inheritance if thats important to you. Ive run those type numbers in RIP, and with a Roth, it always wins rather handily.
I still go back to the gains growing tax free with a Roth. That is a huge advantage. In fact I am slowly converting money from my traditional brokerage account to Roths. A few thousand a year only gives me a small tax bite at the time of the conversion, then it grows tax free forever (or until I tap it).
I still go back to the gains growing tax free with a Roth. That is a huge advantage. In fact I am slowly converting money from my traditional brokerage account to Roths. A few thousand a year only gives me a small tax bite at the time of the conversion, then it grows tax free forever (or until I tap it).
I am finding with myself and some others that the living in retirement mindset can be different than planning would have made you think.
I am slowly converting money from my traditional brokerage account to Roths. A few thousand a year only gives me a small tax bite at the time of the conversion, then it grows tax free forever (or until I tap it).
Me, too - doing the same. Roths were of no value to me when I worked, tax savings much more important. Tax bracket in retirement lower than when I worked. However, now, Roths will be very useful in future as I age and RMDs increase, not to mention leaving tax-free money to heirs.
Now that its WAY too late, I can easily conceive of a scenario where I made the wrong choice of employer. I work for a large electric utility, that has always had great benefits, but average or slightly lower, salary., but also stellar security. I've always been conservative money wise, so while many of my engineer friends went the more risky high income route, and were the most part successful, I went the more sure fire route. Now I see that while I always thought our non contributory pension, which when fully accrued is 55% of our highest 5 year average out of last 10 salary, more than compensated for the reduced salary in the long run, that because that forces me to always have to pay tax on 85% of my SS, that instead, having a higher salary, with no pension, and purchasing after tax vehicles for low income or having a very large Roth, could be more advantageous. I'm not complaining at all. When I started working, there were no 401ks, IRAs and Roths were 25 years in the future, so impossible to plan around that. When i started working, SS was not indexed for inflation. And the checks always seemed pitifully small, so would never be a major source of income or taxes. Thats all changed. At FRA, our minimum income will be just over $120k, including about $58k in SS, all 85% taxed at 25%. So I will always start off with over 12k in taxes to begin. And go up from there as I withdraw RMDs. So instead of a taxed pension of $60k, where i will pay another $15k in taxes, all I needed was a tax free income of $33k to break even!!! Naturally,mto plan for that in the past is fairly difficult if not impossible, but if I had a $1M Roth, it would be easy. Literally, until I joined this forum a month ago, this never occured to me, nor had I ever read about it. Like I said, I am extremely grateful for what I have and achieved, but I think many of my friends were much smarter, financially, or just a whole lot luckier.
Now that its WAY too late, I can easily conceive of a scenario where I made the wrong choice of employer. I work for a large electric utility, that has always had great benefits, but average or slightly lower, salary., but also stellar security. I've always been conservative money wise, so while many of my engineer friends went the more risky high income route, and were the most part successful, I went the more sure fire route.
Like I said, I am extremely grateful for what I have and achieved, but I think many of my friends were much smarter, financially, or just a whole lot luckier.
They also had a whole lot more stress and less job security. I had a relative engineer for GM - his coworkers were transferred numerous times over the years. He resisted, but finally had to relent and was forced to leave WI for Michigan. Now retired in the Rochester area. Left his and his wife's entire family to do the move - and they were not happy about it. His eldest son still wants to move back, although he is a high school teacher with a Masters Degree, doing well, and son's wife also now works at GM - very overpaid, imo. Economically they are doing much better in Rochester than they would be here, for sure. So, the kids are benefitting, at least for now.
All that said, given my experience in the private sector, I would choose the "sure thing" over the riskier route any day. Utilities aren't the govt, but the next best thing for job security and stability. Unlikely a utility company would require you relocate. And, they won't deprive of your retirement benefit either, which was my experience.
Paying too much in taxes is a good problem to have. Consider doing Roth conversions to the limit of your tax bracket - which will help to keep the RMDs down in future, avoid/mitigate bracket creep - and leave (more) tax-free money to heirs.
You're in a good place.
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