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Old 06-06-2019, 10:19 PM
 
Location: the Permian Basin
4,196 posts, read 3,081,647 times
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Quote:
Originally Posted by mathjak107 View Post
in the end it nets out the same as you saw in my example ...

I pay only income tax on the money I contribute to my Roth. I will pay no tax when I withdraw it, plus the tax-free growth. If I contributed to a pre-tax traditional IRA, I would pay taxes on the contributions and the growth at withdrawal. That does not "net out."
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Old 06-07-2019, 01:38 AM
 
Location: Las Vegas & San Diego
189 posts, read 31,599 times
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Quote:
Originally Posted by Moonwalkr View Post
Again, you are discounting the fact that those are unequal amounts to compare. A better comparison is to actually calculate starting at year 0 putting in $10k to Roth and $12k to 401k, due to that tax being paid in year 0. When you ignore tax on the Roth contribution money, then you might as well ignore the tax on the 401k RMD.
Look at the whole post and not just the bottom part.

Quote:
Originally Posted by mathjak107 View Post
exactly .people love to count paying the taxes with pretax dollars outside the roth with money that could have been invested but now is gone . then they insist on paying the taxes from inside the traditional .... it is not comparing apples to apples at all .
Read my and the OP posts again - you guys are arguing something I did not disagree with and is based on theoretical with a standard IRA and nothing ever changing to make it even out, not real life but also doesn't apply to the OP. Your discussion is based on IRA being tax deductible, the original poster in post 17 said he was in the highest tax bracket and maxing out 401k, so both the Roth and IRA are Non-Deductible and post tax contributions where the tax is the same. I was not comparing the two except when going to spend it which is where it makes a difference in this scenario. Your tax argument doesn't really matter because it doesn't apply and the other features of a Roth make it much more advantageous in this case. Like him, I max out my 401k and do a non-deductible Roth.

When you pay the tax due to other factors can be huge even if can take a tax deduction, a lot of my Roth comes from when I was in Grad School with lots of savings in an IRA but almost no income, conversion cost me very little for most of it. This is much better time to pay than when it is a required RMD that pushes to higher Medicare payment or tax bracket.
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Old 06-07-2019, 02:35 AM
 
71,511 posts, read 71,674,131 times
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Quote:
Originally Posted by Slowpoke_TX View Post
I pay only income tax on the money I contribute to my Roth. I will pay no tax when I withdraw it, plus the tax-free growth. If I contributed to a pre-tax traditional IRA, I would pay taxes on the contributions and the growth at withdrawal. That does not "net out."
wrong just look at the math ....

if you compare apples to apples it is the same ...

in order to convert or to get 5k in a roth 401k you need 6400 pretax dollars in the 22% bracket .

if that 5k doubles it is 10k ....

the same 6400 in pretax dollars in a traditional 401k is 12,800 dollars assuming the same gains ,and we double , which if we take the same tax bracket nets out to the same 10k.

could the equation change for better or worse if taxes change -sure , but if you really want to compare the effects of that tax free growth it will be the same ...it has to be because you have more pretax dollars working for you in the traditional.

there are lots of other perks to a roth but the tax free growth up to rmd age is not one of them . like i said above , you can draw out up to 384k of traditional ira money with less then 5% tax if you tax plan and delay social security all while writing off those contributions while earning one or 2 pay checks as a couple .

that can be a pretty good reduction in rmds and very little tax paid on a traditional compared to converting costs or even how much in pretax dollars you needed to use to save the same amount .

so it can work either way better depending on individual tax circumstances , planning and amounts involved.

returns are one thing ,,, your after tax nets and tax situation is quite another .... the roth may work better because of your tax situation but balances will start out the same from the gains , don't confuse the two issues .


what we get in salary is one thing when we work ...what our individual tax situations are is quite another issue and this is no different. some will actually net more by spending down the traditional early on at very low to no taxes then they will by using a roth and paying taxes up front on possibly two combined income levels so it is NOT A SLAM DUNK WE WILL AUTOMATICALLY NET MORE FROM A ROTH

Last edited by mathjak107; 06-07-2019 at 03:45 AM..
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Old 06-07-2019, 06:47 AM
 
1,696 posts, read 609,966 times
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Quote:
Originally Posted by NewbieHere View Post
If they tax on earnings for Roth, thatís the same as traditional IRA, might as well discount Roth. Whatís the point of having Roth?

The remaining point of having a Roth would be to not have RMDs starting at 70, ie, letting the money grow in the Roth for a longer time, thus compensating for increased longevity. In that case, Roth would be like a traditional IRA that can be used not starting at 70, but after all other resources run out (presumably much later than age 70).



As I said, I hope taxation of Roth earnings will never happen... but, with the size of federal deficit and depletion of soc.security and Medicare funds, I'm afraid nothing is off limits for taxation any more...
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Old 06-07-2019, 06:49 AM
 
71,511 posts, read 71,674,131 times
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my opinion is roths should have non taxable rmd's after 70-1/2... they should be treated like traditional's at 70-1/2 where whether you pay taxes up front or along the way it should have nothing to do with what happens at 70-1/2 ... they should even it up by making both have to be emptied over a lifetime
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Old 06-07-2019, 06:58 AM
 
Location: RVA
2,164 posts, read 1,265,106 times
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Quote:
Originally Posted by mathjak107 View Post
we are in the same bracket in retirement as working . nothing changed ...
Same for us. My intention is to pay as much of my taxes while the rates are reduced by 2025 via Roth contributions, conversions, and after tax cash.
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Old 06-07-2019, 07:03 AM
 
Location: RVA
2,164 posts, read 1,265,106 times
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Quote:
Originally Posted by GeoffD View Post
I think you have the math wrong. Single, the 12% bracket extends up to $51,675 AGI. Your $39,475 plus the $12,200 standard deduction. Your Federal income tax bill on that is $4,543 The married numbers are double that. You're still in the 12% bracket with $103K AGI. You're paying $9K in Federal taxes so you're living on $94K cash flow. That's not awful.



My thinking is to delay collecting Social Security until age 70 and try to keep my AGI to $51,675 to be tax efficient. Put a dent in my tax deferred accounts now so I'm not nailed with RMDs later. My age 70 Social Security check is a COLA-protected $45K. My girlfriend has similar math.


Two years ago before the tax law change, I was thinking I'd be doing Roth conversions once I stopped working. That no longer makes any sense.
Why not now? Convert while taxes are discounted 3%.

And I was referring to marginal rate, not average rate. Sure, 12% average is fine, it every dollar AFTER that AGI is taxed at 22% today, 25% after 2025. That’s what counts.
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Old 06-07-2019, 08:11 AM
 
36 posts, read 11,571 times
Reputation: 86
Quote:
Originally Posted by Slowpoke_TX View Post
I pay only income tax on the money I contribute to my Roth. I will pay no tax when I withdraw it, plus the tax-free growth. If I contributed to a pre-tax traditional IRA, I would pay taxes on the contributions and the growth at withdrawal. That does not "net out."
You don't pay taxes on the contributions.
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Old 06-07-2019, 08:18 AM
 
71,511 posts, read 71,674,131 times
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you do on a roth ..it is funded with after tax dollars. all money is taxed up front going in .
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Old 06-07-2019, 08:38 AM
 
475 posts, read 93,906 times
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Quote:
Originally Posted by Deuce88 View Post
You don't pay taxes on the contributions.
I think the point is that you have ALREADY paid taxes, on the amount contributed to Roth (whether we think about it that way or not). It is admittedly tempting to fall into the trap of thinking that Roth is never taxed while Traditional gets taxed at the time of withdrawal.

That is the root of mathjak's insistence on comparing apples-to-apples in the examples, because it is not a case of one being taxed and the other not. The IRS takes its cut in both scenarios, one on the way in (Roth) and one on the way out (Traditional).

So mathjak is correct that an honest head-to-head comparison would have to use pretax dollars as a starting point in both scenarios. And THEN you can get to factors like RMDs, time horizons, projected differences in tax rates, etc, etc.
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