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Old 06-03-2019, 03:23 PM
 
164 posts, read 177,823 times
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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.
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Old 06-03-2019, 03:32 PM
 
2,564 posts, read 1,021,419 times
Reputation: 2003
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.
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Old 06-03-2019, 03:37 PM
 
244 posts, read 89,595 times
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^^^^ Yeah, that. Some of the Roth perks are not necessarily beneficial for you. But it will help your heirs.
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Old 06-03-2019, 03:39 PM
 
Location: North East
31 posts, read 8,843 times
Reputation: 89
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.
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Old 06-03-2019, 03:48 PM
 
202 posts, read 74,464 times
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Default You can always do both

As previous posters said, just split between a traditional and roth. You get the best of both worlds. As always, starting early is key.
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Old 06-03-2019, 03:56 PM
 
Location: Central IL
15,215 posts, read 8,518,332 times
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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.
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Old 06-03-2019, 05:41 PM
 
Location: Florida
4,360 posts, read 3,696,311 times
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Your equity investments will keep up with inflation better than cash or bonds.
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Old 06-03-2019, 05:45 PM
 
3,546 posts, read 1,360,288 times
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agree with everyone above: diversify.
we have Roth and standard IRAs.
we have stocks and bonds.
we have cash and gold.
we cannot make up
our minds.
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Old 06-03-2019, 05:53 PM
 
Location: Omaha, Nebraska
7,311 posts, read 4,154,596 times
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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.).
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.
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Old 06-03-2019, 11:11 PM
 
Location: Las Vegas & San Diego
196 posts, read 31,883 times
Reputation: 195
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.
A little clarification, it is not just the principle that can be withdrawn tax free in a Roth, all money including the growth is tax free. The statement implies that 401K and Mutual are different than Roth accounts but do not have to be. There is such a thing as a Roth 401k but not all employers offer them and employers contributions must go into regular 401K. Roth's can contain Mutual Funds or practically any type of investment.

There are several advantages for a Roth, some of which have been mentioned

A Roth is generally more tax efficient and flexible in most situations

Roth can be particularly advantageous if will be in a higher tax bracket later since paid tax when it was lower and on a smaller amount (before gain). Also if move from a low tax to high tax state, Roth keeps it out of taxes to state on withdrawal. All regular 401k withdrawals are taxed as ordinary income including growth (ordinarily growth is taxed as capital gains at 15% max unless really wealthy)

With a Roth you can end up with more purchasing power in your retirement account since you pay the tax external to the amount allowed to be put in vs paying tax out the account.

A Roth has no RMD ever so doesn't force into higher tax bracket like a 401K/IRA can.

Any Roth contribution can be withdrawn without penalty and as much as $10k of gain also for 1st house purchase. 401K allows only $10K max for first home and must pay tax on it. Could be huge difference.

Heirs gets the Roth tax free also and can retain till they need (this may change) although amount does count to any inheritance tax (affects few)

Roth doesn't impact calculations for taxable amount of Social Security payments, tax brackets or Medicare Part B payments - can be a huge advantage. Regular 401K and IRA can force a very high marginal tax increase (called a widows tax) with the death of a spouse.

Contributions to a IRA is limited to 70, no limit for age on a Roth.

I would put the majority in a Roth unless in a high tax bracket or plan to move to a low tax state when you retire.
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