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Old 06-03-2017, 02:27 PM
 
659 posts, read 325,772 times
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OP-- I have a Traditional IRA that I started with $500 in 1990. There were no Roth available then and I wish there was. The Trad IRA is now worth 100K because I did not contribute every year. 90% will be fully taxable. If it was a Roth, I could get tax free withdrawals.
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Old 06-03-2017, 07:05 PM
 
Location: Myrtle Creek, Oregon
12,290 posts, read 12,529,205 times
Reputation: 19502
Quote:
Originally Posted by Aredhel View Post
Checking the SS website monthly is a complete waste of your time and effort. You're at least 30 years away from collecting (unless you become disabled), and who knows how much you'll earn over those years, or how the SS program will be tweaked during that time. The "estimates" you are seeing are therefore best regarded as total fantasy.

Better to forget about the SS website until you are a LOT closer to retirement, and concentrate on monitoring your spending patterns and savings rate instead. Those are things YOU control.
Just so. Thirty years from now it's likely that senior citizens will be collecting the same guaranteed basic income everyone else has access to, and will be subject to the same means testing. Thirty years is a long time. They'll wait until the SS trust fund is exhausted, then redesign the whole system.
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Old 06-03-2017, 07:07 PM
 
Location: Gilbert, AZ
3,186 posts, read 1,966,450 times
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Quote:
Originally Posted by nep321 View Post
No one has still shown me how a Roth is better for someone like myself who will be in a significantly lower tax bracket and rate when I'm in retirement compared to now.
I honestly couldn't tell you what's the right choice based on the information you've given. But this statement tells me you don't understand all of the tax issues. I know, because I used to think in these simplistic terms.
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Old 06-04-2017, 06:20 AM
 
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I see everyone saying roths, roths, roths. But when I run the roth verse traditional 401k calculator the outcome showed the traditional as making the most sense in my situation.

There is a lot of tax savings now by using traditional for me. And I def would not be able to max out if I went Roth.
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Old 06-04-2017, 07:05 AM
 
Location: Central IL
15,253 posts, read 8,556,682 times
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Quote:
Originally Posted by nep321 View Post
Not to mention, the Roth IRA contribution limit is a pathetic $5,500 per year. How is that going to get me anywhere?!

At least I am able to contribute up to $18,000 per year in a traditional 401k. My employer doesn't offer Roth 401k's either.
It's not all or nothing. I almost max out my 401(k) and then do a bit more than half of the Roth limit - I have for maybe 15 years. At this point about 25% of my retirement accounts are Roth.

I do it as a hedge - a way to diversify my RETIREMENT tax situation. Sure, I don't know exactly how things will be...but I'm hearing some retired folks on here talk about how much they're getting taxed and RMDs, etc. so that I know I'm on to something. And I'll likely convert more to Roth once I'm retired.
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Old 06-05-2017, 06:17 PM
 
Location: Myrtle Creek, Oregon
12,290 posts, read 12,529,205 times
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Quote:
Originally Posted by rocafeller05 View Post
I see everyone saying roths, roths, roths. But when I run the roth verse traditional 401k calculator the outcome showed the traditional as making the most sense in my situation.

There is a lot of tax savings now by using traditional for me. And I def would not be able to max out if I went Roth.
The big wild card is how much of your SS will be taxed. I pay income tax on 85% of my SS. There's no way I could miss that because of my retirement income, but if you plan on living off of IRAs and SS, a Roth is very much the way to go.
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Old 06-06-2017, 05:54 AM
 
Location: RVA
2,172 posts, read 1,270,926 times
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If you are young and have an average or below average income, a Roth should be thr long term winner, assuming you plan on doing better as you age. Ad you get older and your tax rate rises, switching to tax deferred may be better. Once you are a few years from retirement and know your tax situation better, then its too late to have made the Roth decision many years ago and have let time do the heavy lifting. When you are contributing to both, even though the amount that your income is reduced is less for a tax deffered, rarely does anyone think that way. It's human nature.

Many 401k plans have after tax options (that are not Roths) and allow an annual partial rollover. Mine does. So besides the $6500 limit (after 50), I typically add twice that annually from the 401k, with no tax penalty. You could also roll over pre tax funds to the Roth, but then you will pay taxes on that money. Even though that is exactly the same, accounting wise, as having no limit to how much can be added to a Roth, in human terms, being faced with the all at once separate tax bill turns people off. Paying a smaller amount monthly as part of a deduction, to Roth is always less painful then all at once. Purely mental, as it is in reality exactly the same.

Having a large Roth in addition to tax deferred gives you flexibility and options. You can easily tailor you taxable income with a Roth.

People constantly say they have "$500k" saved, or what ever amount. The vast majority of that is tax deferred, and is often used as income for discretionary or emergency items. So the tax rate is set, and large withdrawals from deferred accounts are at that rate or can even bumo you higher. So if you are in the 25% bracket, you don't have $500k saved, you have $375k you can use. If you have $500k saved but half is a Roth, you have $437k you can use, and up to $250k without affecting your income. By the time you accumulate, you've long forgotten and absorbed the up front taxes you paid on the Roth, and only really care about the fact that when your Roth appreciates $20k in a year, that $20k is all yours. Only $15k of that $20k in the deferred account is yours. And so it goes, forever.

Most people don't aquire their savings like a corporation where everything is based on optimal profit, or minimal tax etc. Most people just save "an amount", and live on whats left. I don't know anyone that saves to the point where the difference of paying tax on a Roth vs not on a tax deferred makes a difference in their lifestyle. I'm sure they are out there, I just don't know any. BUt I know many large savings, well over 2 million, and all wish NOW, that retirment is looming, they had participated in Roths, even if the net after taxes is the same. There are nust too many factors and rules for withdrawal of a significant amount needed from a tax deferred account. Plus,any are finding out that their equivalent tax rate is going to be higher in retirement than it was when working, thanks to the RMDs and taxable income from those accounts.
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Old 06-06-2017, 10:26 AM
 
4,720 posts, read 10,327,707 times
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^^ Help me understand this better please.


Even with $2 million in trad. 401k and you have to take RMD's that is roughly $77K a year. Then lets add $50k on to that for SS.

Married couple at $127k a year is still in the 25% bracket correct?
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Old 06-06-2017, 01:27 PM
 
18,868 posts, read 13,640,422 times
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Quote:
Originally Posted by NewbieHere View Post
For a young person, it's best to save, IRA, 401k or Roth IRA, just do it. I know one of my kids wouldn't start saving if she doesn't immediately see the benefits, like reduced income tax and FICA tax. So it's best to let her think she's better off with 401k. Maybe when she has more money, she can do Roth 401k.
Also I think if one puts money in 401k, one effectively lowers one's income that one might even qualify for Roth IRA. A win win combination.
401k contributions don't reduce your FICA withholdings/liability
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Old 06-06-2017, 03:48 PM
 
Location: Myrtle Creek, Oregon
12,290 posts, read 12,529,205 times
Reputation: 19502
Quote:
Originally Posted by rocafeller05 View Post
^^ Help me understand this better please.


Even with $2 million in trad. 401k and you have to take RMD's that is roughly $77K a year. Then lets add $50k on to that for SS.

Married couple at $127k a year is still in the 25% bracket correct?
If you have 1.5 million in a Roth, you don't have to take RMDs if you don't need them, but you can withdraw any amount of money at any time, tax free. Also, if you are pulling the money out of a traditional 401k you lose 21% of your SS to federal income tax.
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