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Old 06-03-2019, 11:52 PM
 
Location: the Permian Basin
4,196 posts, read 3,084,440 times
Reputation: 5892

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Quote:
Originally Posted by Pianist718 View Post
Yes, I know that it makes sense, in general. Yes, it's tax free growth. But how much and at what cost?

Using the calculator here (https://www.bankrate.com/calculators...alculator.aspx), I select $5,500/yr contribution for the next 30 years. I know contributions increase, but for now sticking with a set $5,500.

At conservative 6% growth, after investing $165k, at 30yr mark you get $460k.

Now, all this may looks great, however. Inflation! So a dirty, non scientific calculation is, after 30yr, that $460k is more like 230k. And my 165k invested now and throughout 30yrs is more like $110k.

So, after all is done, you're at approximately $120k. Fine, even if it's $140k, still this is pretty small.

Please share your thoughts on this. Have you yourself done similar type of calculation to justify Roth IRA?
thank you.

Unless you're beginning your retirement investing later in the course of your career, always take Roth over traditional.


And either one is more advantageous than not investing at all.
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Old 06-04-2019, 02:04 AM
 
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
22,570 posts, read 39,952,759 times
Reputation: 23704
Quote:
Originally Posted by Pianist718 View Post
Yes, I know that it makes sense, in general. Yes, it's tax free growth. But how much and at what cost?

Using the calculator here...
So, after all is done, you're at approximately $120k. Fine, even if it's $140k, still this is pretty small.

Please share your thoughts on this. Have you yourself done similar type of calculation to justify Roth IRA?
thank you.
Roth is just one of several tools and needs to be utilized when it makes sense for you. (We are each different in taxation / earnings) but a Roth has a LOT of flexibility (basically a 'savings account' ... accessible contributions after 5 yr holding period. + no RMD's, no withdrawal taxation and INCOME TAX FREE growth (My Roths are very aggressively invested. - such as the 15 - 25% growth stuff)

I run Roth and Traditional scenario every yr for last 20+ yrs and fund what makes sense for that yr.
On low tax yrs (sabbatical / gap yr / loss harvesting...) I convert Tira to Roth. I would be fine having 50% of qualified funds in a Roth by age 60 and 75% by age 70.5! Including rollovers. 401k stays funded for better liability protection.

Quote:
Originally Posted by Slowpoke_TX View Post
Unless you're beginning your retirement investing later in the course of your career, always take Roth over traditional.


And either one is more advantageous than not investing at all.
I tend to think this way ^^^

Even tho I have never been in a high tax bracket (<15%)... I do NOT see me getting to lower effective tax rates in retirement. So I preference my Roths. (And they have done VERY well for me).

I am glad I have a Roth! (several)
I am glad I have investment props
I am glad I have LLC's
I am glad I have DAF
All are useful tools in the journey of taxation / wealth building / financial management / succession & estate planning
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Old 06-04-2019, 04:28 AM
 
11,129 posts, read 8,540,714 times
Reputation: 28094
Quote:
Originally Posted by Pianist718 View Post
Yes, I know that it makes sense, in general. Yes, it's tax free growth. But how much and at what cost?

Using the calculator here (https://www.bankrate.com/calculators...alculator.aspx), I select $5,500/yr contribution for the next 30 years. I know contributions increase, but for now sticking with a set $5,500.

At conservative 6% growth, after investing $165k, at 30yr mark you get $460k.

Now, all this may looks great, however. Inflation! So a dirty, non scientific calculation is, after 30yr, that $460k is more like 230k. And my 165k invested now and throughout 30yrs is more like $110k.

So, after all is done, you're at approximately $120k. Fine, even if it's $140k, still this is pretty small.

Please share your thoughts on this. Have you yourself done similar type of calculation to justify Roth IRA?
thank you.
A Roth itself has nothing to do with returns or inflation. An equivalent investment in an equivalent mutual fund will provide the same results without the tax benefits.

If you didn't do a Roth, what are your other options and will it really be that much better?

The key to investing is consistency over time.
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Old 06-04-2019, 06:35 AM
 
47 posts, read 12,625 times
Reputation: 119
I think people tend to overthink investing. Would you rather have $460K in 30 years in a Roth IRA or $0 by not investing at all?
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Old 06-04-2019, 07:27 AM
 
11,129 posts, read 8,540,714 times
Reputation: 28094
I don't think the OP understands that a Roth is not a type of investment. A Roth is a type of investment account.

A person could go to Schwab and invest in the Schwab S&P 500 Index fund. They can have the account as a regular investment account or they can have the account as a Roth IRA. In either case, the actual index fund will have the same performance and returns. The only difference are the tax advantages and account limits with a Roth.

Inflation will still be the same for the regular account.
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Old 06-04-2019, 07:38 AM
 
3,715 posts, read 3,123,109 times
Reputation: 7866
Quote:
Originally Posted by Pianist718 View Post
Yes, I know that it makes sense, in general. Yes, it's tax free growth. But how much and at what cost?

Using the calculator here (https://www.bankrate.com/calculators...alculator.aspx), I select $5,500/yr contribution for the next 30 years. I know contributions increase, but for now sticking with a set $5,500.

At conservative 6% growth, after investing $165k, at 30yr mark you get $460k.

Now, all this may looks great, however. Inflation! So a dirty, non scientific calculation is, after 30yr, that $460k is more like 230k. And my 165k invested now and throughout 30yrs is more like $110k.

So, after all is done, you're at approximately $120k. Fine, even if it's $140k, still this is pretty small.

Please share your thoughts on this. Have you yourself done similar type of calculation to justify Roth IRA?
thank you.
Flawed analysis as inflation affects all your savings and investments whether Roth or something else. It's like asking should I keep my Christmas cake on the counter or in the cabinet. Doesn't matter as by Christmas neither one will be edible.
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Old 06-04-2019, 07:46 AM
 
164 posts, read 177,975 times
Reputation: 48
Appreciate everyone's comments.
I should clarify a few things.

I currently invest almost maximum allowed in 401k, and since I am in the highest tax bracket, I see value in 401k.

Obviously, if my choice was to put money under the mattress or invest "via" Roth IRA, I'd go with Roth IRA. My hesitation is that I could also start buying rental properties, and at average of $140k for a 1-2bd apartment, down payment being 20% (28k), that at least gives me assets that are not so volatile. With average return figures mentioned by others, you assume that by the time you need your Roth, market will be on the high end instead of in a dip that can last for years until it recovers. I guess, good thing that they don't require you to withdraw as soon as you retire.

The point about the lack of required minimum withdrawal for Roth, mentioned above is a valid one, and something I did not consider. Also, if one is a bit aggressive with their Roth IRA, meaning, 50% into index fund and the rest into blue chip stocks (Microsoft, JPMorgan, etc), that could "hopefully" produce higher return than the 6% I used for my calculation.

All in all, for some reason, I just thought/hoped/assumed that Roth IRA would produce a higher return after 30 years of contributions. Considering inflation and limit on how much you can invest, I see that it's better than nothing, but ultimately Government making sure that the elderly don't drain it's budget. That's all.

For me, I guess the word to use is "diversification". Do 401k, do a bit (3-4k/yr) of Roth IRA and buy a few properties to rent out.



Quote:
Originally Posted by Lizap View Post
I recommend diversifying between Roth and non-Roth accounts. Federal income taxes will very likely head higher at some point. Also, Roths can be passed to your heirs, who can take a whole distribution or distributions over their life expectancy.
Quote:
Originally Posted by homestead123 View Post
The Roth is just one vehicle in your garage, man. The beauty of a Roth is if needed you can withdraw your principle amount penalty free. (You alreAdy paid the tax on the front end.)
Another aspect is that it is quite possible the tax rates will rise in 40 or so years.
Drive that Roth, but drive those 401's, and mutuals too.
Quote:
Originally Posted by reneeh63 View Post
Back when I started my Roth I figured tax diversification was important, like portfolio diversification. I did get a later start with my Roth but it makes up 25% of my total portfolio.
Quote:
Originally Posted by Aredhel View Post
Also there are no RMDs on a Roth (and for the same reason: You already paid the tax on the money invested, and owe no tax on the gains, so why should the government care when or how much you withdraw from the account?).

I agree with the others: having some funds in a regular IRA or 401k and some in a Roth IRA or Roth 401k is the best way to go.
Quote:
Originally Posted by Slowpoke_TX View Post
Unless you're beginning your retirement investing later in the course of your career, always take Roth over traditional.


And either one is more advantageous than not investing at all.
Quote:
Originally Posted by StealthRabbit View Post
Roth is just one of several tools and needs to be utilized when it makes sense for you. (We are each different in taxation / earnings) but a Roth has a LOT of flexibility (basically a 'savings account' ... accessible contributions after 5 yr holding period. + no RMD's, no withdrawal taxation and INCOME TAX FREE growth (My Roths are very aggressively invested. - such as the 15 - 25% growth stuff)

I run Roth and Traditional scenario every yr for last 20+ yrs and fund what makes sense for that yr.
On low tax yrs (sabbatical / gap yr / loss harvesting...) I convert Tira to Roth. I would be fine having 50% of qualified funds in a Roth by age 60 and 75% by age 70.5! Including rollovers. 401k stays funded for better liability protection.



I tend to think this way ^^^

Even tho I have never been in a high tax bracket (<15%)... I do NOT see me getting to lower effective tax rates in retirement. So I preference my Roths. (And they have done VERY well for me).

I am glad I have a Roth! (several)
I am glad I have investment props
I am glad I have LLC's
I am glad I have DAF
All are useful tools in the journey of taxation / wealth building / financial management / succession & estate planning
Quote:
Originally Posted by charlygal View Post
I don't think the OP understands that a Roth is not a type of investment. A Roth is a type of investment account.

A person could go to Schwab and invest in the Schwab S&P 500 Index fund. They can have the account as a regular investment account or they can have the account as a Roth IRA. In either case, the actual index fund will have the same performance and returns. The only difference are the tax advantages and account limits with a Roth.

Inflation will still be the same for the regular account.
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Old 06-04-2019, 07:53 AM
 
Location: Omaha, Nebraska
7,316 posts, read 4,160,046 times
Reputation: 18323
Quote:
Originally Posted by Pianist718 View Post
All in all, for some reason, I just thought/hoped/assumed that Roth IRA would produce a higher return after 30 years of contributions.
It's making the same rate of return as a traditional IRA or your own 401k, provided the investments are the same. So I am not sure why you're bothered by this so much.

As for the contribution limits, they are the same as for a traditional IRA. All IRAs have lower yearly contribution limits than a 401k or 403b (which is one of the weaknesses of the current retirement savings system, since not everyone has access to an employer-sponsored retirement account).
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Old 06-04-2019, 08:06 AM
JRR
 
Location: Middle Tennessee
3,679 posts, read 2,226,353 times
Reputation: 5230
We used our Roths for some of our more speculative stock investments as they are our last line of monetary defense in retirement. Hitting a big winner in a Roth can really pay off as it happens under the no tax umbrella.
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Old 06-04-2019, 08:08 AM
 
164 posts, read 177,975 times
Reputation: 48
Quote:
Originally Posted by JRR View Post
We used our Roths for some of our more speculative stock investments as they are our last line of monetary defense in retirement. Hitting a big winner in a Roth can really pay off as it happens under the no tax umbrella.
Yep, that is what I am thinking as well. Just look at Microsoft. Tax free growth. Amazing.
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