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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.
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 .
Once 1/2 your SS plus pensions exceeds about $39k single or $77k MFJ, then everything from a tIRA is taxed at 22/25% all the way to $87/165! I wish I HAD saved a much higher percentage after tax vs 401k/IRA.
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.
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.
I have read that the Feds are discussing potentially introducing RMD to Roth...
Make sure the heirs invest money in Roth IRA for themselves. Money should not be perpetuated forever. Or get a trust, this is how really rich people do it.
I have read that the Feds are discussing potentially introducing RMD to Roth...
An inherited Roth is subject to RMDs, always has been. The owner of a Roth is not subject to RMDs, nor is the surviving spouse if the original owner dies and his or her Roth is rolled over to the surviving spouse - but if anybody other than the spouse inherits that Roth, he/she has to take RMDs (I think starting in the year in which the original Roth owner dies, but am not sure).
I don't think Roth will ever be subject to RMDs by the original owner, but more seriously, they are discussing taxing all Roth earnings at the time they are withdrawn.
Right now, the benefits of Roth over a traditional IRA (for the original owner) are (1) no RMDs from Roth, and (2) when the money is withdrawn from Roth eventually, there is no tax on the earnings/dividends accrued inside that Roth. They are talking (although fortunately not very seriously - yet) about abolishing the second benefit, ie, about taxing the accrued earnings when original owners withdraw money from their Roth.
Regardless, if a person is 60-ish and has a traditional IRA that he/she does not expect to need for 20+ years, I don't see a downside to Roth conversion. I am in that situation, at the age of 59, and plan to convert my self-employment IRA into Roth over the next 3 years. This year, I have cut my part-time work to a minimum (basically, only to earn enough to pay taxes on the Roth conversion), to avoid getting into a tax bracket higher than 24%.
If they tax on earnings for Roth, that’s the same as traditional IRA, might as well discount Roth. What’s the point of having Roth?
I think what the poster is saying is that a proposal has been put forward where earnings on a Roth account would be taxed upon withdrawal, but not the actual contributions. You would essentially be getting a tax break on your contributions up-front with the Traditional IRA, but on the back-end with a Roth, under that proposal.
Currently, Traditional IRA contributions are tax deductible in the year they are made. Annual dividends, interest or capital gains are not subject to taxes, either. Those contributions and earnings on the account are now essentially combined, and are taxed in the year they are withdrawn.
With a Roth, you don't get a deduction at the time you make the contribution, but earnings on the account are not subject to income tax. Because you did not take tax deductions when those contributions were originally made, you get to make withdrawals tax-free.
I think what the poster is saying is that a proposal has been put forward where earnings on a Roth account would be taxed upon withdrawal, but not the actual contributions. You would essentially be getting a tax break on your contributions up-front with the Traditional IRA, but on the back-end with a Roth, under that proposal.
Currently, Traditional IRA contributions are tax deductible in the year they are made. Annual dividends, interest or capital gains are not subject to taxes, either. Those contributions and earnings on the account are now essentially combined, and are taxed in the year they are withdrawn.
With a Roth, you don't get a deduction at the time you make the contribution, but earnings on the account are not subject to income tax. Because you did not take tax deductions when those contributions were originally made, you get to make withdrawals tax-free.
We already have non-deductible IRA where contribution is not tax deductible.
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