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Old 06-04-2019, 05:50 PM
 
Location: the Permian Basin
4,196 posts, read 3,084,440 times
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Quote:
Originally Posted by fatsquirrel View Post
Roth IRAs are only worth it if you make chit wages because you pay the tax now. Why not get a normal IRA that will tax your much lower old man salary when you're old.

Because the growth in a traditional IRA is taxed at withdrawal, whereas the growth in a Roth IRA does not get taxed.


Pay a little tax now, or a lot of tax later. Your call.
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Old 06-04-2019, 05:56 PM
 
71,559 posts, read 71,730,589 times
Reputation: 49156
Quote:
Originally Posted by Slowpoke_TX View Post
Because the growth in a traditional IRA is taxed at withdrawal, whereas the growth in a Roth IRA does not get taxed.


Pay a little tax now, or a lot of tax later. Your call.


in the end it nets out the same as you saw in my example ...

Quote:
Originally Posted by mathjak107 View Post
compared to a traditional 401k or conversion there is no additional benefit from the gains ...

you would need 6666.00 pretax dollars to clear 5k in a roth assuming 25% bracket ....

even if the roth doubled to 10k , in the traditional , 6666.00 doubling too , would be 13,332 ...less the same tax it is the same 10k
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Old 06-04-2019, 06:15 PM
DKM
 
Location: Thousand Oaks, CA
2,828 posts, read 1,008,778 times
Reputation: 2847
In a perfect world (where you can predict the future) you would use a Roth in lower income years and a traditional in higher income years. This means, for most of us, the Roth is better until your mid 40s then you should put more into traditional. More or less... But also keep in mind if you live in a high tax state and plan to retire to a state that will tax your withdrawals less, then a traditional wins.
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Old 06-04-2019, 06:25 PM
 
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
22,569 posts, read 39,952,759 times
Reputation: 23704
Quote:
Originally Posted by DKM View Post
In a perfect world (where you can predict the future) you would use a Roth in lower income years and a traditional in higher income years. This means, for most of us, the Roth is better until your mid 40s then you should put more into traditional. More or less... But also keep in mind if you live in a high tax state and plan to retire to a state that will tax your withdrawals less, then a traditional wins.
Even Federal tax obligation (Only) is worth the many benefits of a Roth for those of us who live, and work, and keep our investment properties in No Income Tax states.


Very simple to run the numbers annually to help determine best steps / funding.

But for the high rollers... Roth during high income yrs will not be advantageous (at that time, or possibly in the future, depending on income and taxation levels).

I again use a very simple 10% rule...
If my current taxes are over 10%, I typically use a Tira for annual contributions. (Depending on tax software output)

If my effective tax is less than 10%, I do Roth or Roth rolls.

I am just 'guessing' my future taxes will NOT be less than 10%, (and I can afford to pay 10% today, but maybe not in the future).

Not knowing the future tax tables makes absolutely accurate Roth analysis impossible. There are several Roth benefits, and I like flexibility, especially while seeking ACA subsidy while pre-age 65. Roth is a winner for that!
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Old 06-04-2019, 07:48 PM
 
476 posts, read 94,654 times
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As others have noted, there are a large number of factors to consider in comparing traditional versus Roth IRAs. Those giving an "always do it this way" answer (or a "they work out the same" answer) are likely over-simplifying.

Just to add to that pile of factors, one thing I haven't seen mentioned (sorry if I overlooked) are the income limits for contributions. There are no income limits for contributing to a traditional IRA, but there ARE limits for tax deductions. In other words, anyone can contribute, but you may not get the full tax advantage, if you earn over a certain amount. By contrast, there are income limits for a Roth, so you can't contribute at all (directly), if you earn too much.

You can, however, make a non-deductible contribution to a traditional IRA, and then immediately convert to a Roth (already referenced above). This "backdoor conversion" allows you to (legally) work around the income limits, ending up with the full tax advantages of the Roth... plus no RMDs, if you don't end up needing those funds down the road. Those are pretty good perks, for those who might otherwise be shut out.
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Old 06-05-2019, 01:25 AM
 
71,559 posts, read 71,730,589 times
Reputation: 49156
Quote:
Originally Posted by DKM View Post
In a perfect world (where you can predict the future) you would use a Roth in lower income years and a traditional in higher income years. This means, for most of us, the Roth is better until your mid 40s then you should put more into traditional. More or less... But also keep in mind if you live in a high tax state and plan to retire to a state that will tax your withdrawals less, then a traditional wins.
there are still other factors favoring a roth because so much is linked to retirement income ... getting ss taxed , aca subsidies , what you pay for medicare , making use of the zero percent tax bracket on capital gains in brokerage accounts , rmds that may have to be taken as a single when you lose a spouse . after age 70-1/2 all gains are taxed in a traditional when the rmds are reinvested , a roth is tax free forever .

your tax bracket can actually be higher in retirement and the roth can still win over the traditional because of all the associated perks
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Old 06-05-2019, 06:03 AM
 
Location: RVA
2,165 posts, read 1,265,978 times
Reputation: 4456
As stated, the arithmetic makes zero sense if you will have and live, a very modest retirement. Many people pay zero taxes in retirement. Mathjak has pointed out many times that there is considerable room for tax fee withdrawals in the tax code, before taxes hit, plus SS and after tax savings that combine for a decent retirement income so a traditional IRA makes MUCH more sense during your working years. Unfortunately, usually you do not know what your tax bracket in retirement will be, when a Roth is most useful. Plenty of people avoided paying ANY tax (or a very small percentage) ever on their IRA/401ks, even with RMDS.

If you are in the max bracket. (38% ish) it makes no sense to contribute or convert to a Roth unless it is something you want for your heirs. Very very few people retire with income in the highest tax bracket, where they have such mundane and small saving vehicles like Roth’s and IRAs.

For us more above average savers/investors, where taxes WILL continue until we die, a Roth has many advantages, in avoiding a higher bracket, and if married, to retain that same tax free income it generates for the surviving spouse.

Inflations and returns are not at all part of the discussion as whether to use a Roth or not.
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Old 06-05-2019, 07:32 AM
 
164 posts, read 177,975 times
Reputation: 48
Again, thanks for the info.

To point something out ... my current situation is I am taxed like crazy. File as single, six figure salary.
Yes, I try to max out 401k for tax purposes, but, since I am not allowed to do tIRA, I want to take advantage of the Roth IRA via backdoor.

Now, why IRA. I see the benefit of money growth tax free. I see the benefit of not being forced to withdraw money after a certain age. I see benefit of being able to take out what I put in (may have some limitations in my state of NJ), I see the benefit of having a high % of IRA focus on REITs and high dividend stocks/funds. (Let me know if you agree here).

My big questions now are;

1) Lots of opinions I hear where some have huge % of their Roth IRA focused on REITs (mainly for the dividends) and high dividend stocks or funds such as VHDYX (no longer available), now VYM instead. Thoughts?

2) If I have a spouse who does not work, what are her options when it comes to retirement accounts? I know there is limitation with Roth IRA where if you have no paycheck, you can't contribute? Thoughts?

Thank you.


Quote:
Originally Posted by HeelaMonster View Post
As others have noted, there are a large number of factors to consider in comparing traditional versus Roth IRAs. Those giving an "always do it this way" answer (or a "they work out the same" answer) are likely over-simplifying.

Just to add to that pile of factors, one thing I haven't seen mentioned (sorry if I overlooked) are the income limits for contributions. There are no income limits for contributing to a traditional IRA, but there ARE limits for tax deductions. In other words, anyone can contribute, but you may not get the full tax advantage, if you earn over a certain amount. By contrast, there are income limits for a Roth, so you can't contribute at all (directly), if you earn too much.

You can, however, make a non-deductible contribution to a traditional IRA, and then immediately convert to a Roth (already referenced above). This "backdoor conversion" allows you to (legally) work around the income limits, ending up with the full tax advantages of the Roth... plus no RMDs, if you don't end up needing those funds down the road. Those are pretty good perks, for those who might otherwise be shut out.
Quote:
Originally Posted by mathjak107 View Post
there are still other factors favoring a roth because so much is linked to retirement income ... getting ss taxed , aca subsidies , what you pay for medicare , making use of the zero percent tax bracket on capital gains in brokerage accounts , rmds that may have to be taken as a single when you lose a spouse . after age 70-1/2 all gains are taxed in a traditional when the rmds are reinvested , a roth is tax free forever .

your tax bracket can actually be higher in retirement and the roth can still win over the traditional because of all the associated perks
Quote:
Originally Posted by Perryinva View Post
As stated, the arithmetic makes zero sense if you will have and live, a very modest retirement. Many people pay zero taxes in retirement. Mathjak has pointed out many times that there is considerable room for tax fee withdrawals in the tax code, before taxes hit, plus SS and after tax savings that combine for a decent retirement income so a traditional IRA makes MUCH more sense during your working years. Unfortunately, usually you do not know what your tax bracket in retirement will be, when a Roth is most useful. Plenty of people avoided paying ANY tax (or a very small percentage) ever on their IRA/401ks, even with RMDS.

If you are in the max bracket. (38% ish) it makes no sense to contribute or convert to a Roth unless it is something you want for your heirs. Very very few people retire with income in the highest tax bracket, where they have such mundane and small saving vehicles like Roth’s and IRAs.

For us more above average savers/investors, where taxes WILL continue until we die, a Roth has many advantages, in avoiding a higher bracket, and if married, to retain that same tax free income it generates for the surviving spouse.

Inflations and returns are not at all part of the discussion as whether to use a Roth or not.
Quote:
Originally Posted by DKM View Post
In a perfect world (where you can predict the future) you would use a Roth in lower income years and a traditional in higher income years. This means, for most of us, the Roth is better until your mid 40s then you should put more into traditional. More or less... But also keep in mind if you live in a high tax state and plan to retire to a state that will tax your withdrawals less, then a traditional wins.
Quote:
Originally Posted by Slowpoke_TX View Post
Because the growth in a traditional IRA is taxed at withdrawal, whereas the growth in a Roth IRA does not get taxed.


Pay a little tax now, or a lot of tax later. Your call.
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Old 06-05-2019, 08:38 AM
 
Location: Omaha, Nebraska
7,316 posts, read 4,160,046 times
Reputation: 18318
Quote:
Originally Posted by Pianist718 View Post
1) Lots of opinions I hear where some have huge % of their Roth IRA focused on REITs (mainly for the dividends) and high dividend stocks or funds such as VHDYX (no longer available), now VYM instead. Thoughts?
A lot of people like to hold REITs, dividend-producing stocks, and bonds inside retirement accounts so they don't have to pay taxes on the income those investments generally produce.

Quote:
2) If I have a spouse who does not work, what are her options when it comes to retirement accounts? I know there is limitation with Roth IRA where if you have no paycheck, you can't contribute? Thoughts?
Your spouse can have a spousal IRA (either Roth or traditional): https://www.fool.com/retirement/2016...good-idea.aspx
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Old 06-05-2019, 08:52 AM
 
Location: SoCal
13,226 posts, read 6,326,744 times
Reputation: 9844
Your wife can contribute as a spouse. Roth is where I put my engine of growth. Lots of equities. I figure if I have at least 10 years, it’s probably better to convert to Roth.
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