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you could put 6400 dollars of earnings in a traditional or just 5k in a roth with 1400 going for taxes in the 22% bracket .
most never allow for all the taxes they paid up front in a roth when comparing and so all that extra compounding on the larger amount is not calculated .
you could put 6400 dollars of earnings in a traditional or just 5k in a roth with 1400 going for taxes in the 22% bracket .
most never allow for all the taxes they paid up front in a roth when comparing and so all that extra compounding on the larger amount is not calculated .
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
I agree with you and I have said for a long time that Roth is a fantastic inheritance tool for all these reasons. I don't plan on touching my Roth so think about how much is in the account after building it for 60 years and then passing it to your grandchild who has a lifetime to withdraw from that tax free in entirety.
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.
The reason why I am converting my IRA to Roth now (ie, over the next 3 years) is because of the confluence of favorable factors: (1) I am 59, so this is really the final time for Roth conversion to be meaningful to me in terms of enough years left for tax-free growth of money in the Roth (I do not need to leave inheritance, and plan to use withdrawals from the Roth if I live well past 80), (2) I am old enough to have taken care of other retirement income, so can finally work very little, which allows for Roth conversion without bumping me into the >33% tax bracket (which would happen if I worked more than a couple of months per year - the reason why I could not do any Roth conversion earlier, when I worked more), and (3) as you say, tax rates are favorable right now for Roth conversion. The only element that is missing is that the stock market is still very high... if it is going to crash, it would be nice for me if it did that this year and the next :-). I wouldn't mind if my SEP IRA lost 50% of its value by this December (as it did in 2009) because then I would have to pay only half of the taxes on the Roth conversion :-).
The only thing that you are not taxed on are HSAs. It's pre-tax (or tax deducted), tax-free growth, and tax-free when used (for healthcare expenses).
You don't pay taxes on IRA contributions, they are tax deductible. traditional IRA contributions are tax deferred and are taxed when distributed, Roth IRA contributions are made after taxes are paid but are not taxed when distributed.
to set the record straight , roths have the taxes paid up front since it has to be funded with after tax money . traditionals are not tax free they are tax deferred
I have a pension so am screwed anyway, but a Roth can let you avoid paying income tax on up to 85% of your SS. That's huge. If you can figure out how to keep your taxable retirement income low, do it.
It is important to note - not all IRA are not taxed up front, many can only make a non-deductible contribution. With a non-deductible IRA the better choice almost always skews in favor of the Roth.
It is important to note - not all IRA are not taxed up front, many can only make a non-deductible contribution. With a non-deductible IRA the better choice almost always skews in favor of the Roth.
Correct. If your income does not allow the deduction of contribution to traditional IRA... then I can't think of ANY advantage over Roth, and there is no reason to leave in traditional. In fact, it would seem foolish to leave in traditional and get taxed someday, missing out on tax free growth in the Roth.
(I am open to someone pointing out what I am overlooking in that analysis, however. Bueller..... Bueller??)
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