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Old 07-01-2013, 08:31 PM
 
24,488 posts, read 40,997,192 times
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Quote:
Originally Posted by MrRational View Post
I suppose that question may exist for a few.

Care to describe the profile and/or estimate the percentage it might apply to?
And if you suspect the OP or anyone else reading this thread might be one of them?
Plenty of people living in a high-productive states like those in the Northeast of California would be a prime example of those who would question this. Salaries hit higher brackets early on in those states. Many plan on retiring in low COL states. Especially if you're in the northeast. A huge portion of retirees move to FL. The strategy for them would be to put money in a traditional IRA and reduce their taxes up front. When they move to a low COL area, such as FL, pay the taxes as they withdraw from their IRA since they will only need a fraction of income of what they needed in the the high COL area.
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Old 07-02-2013, 02:30 AM
 
105,761 posts, read 107,756,464 times
Reputation: 79380
predicting the future outcomes is something none of us can do so we all only have opinions as to what may be.

i for one question how many people are really going to end up in higher tax brackets with no pay check and possibly even two pay checks stopping.

many folks have 6 figures in household income coming in that will end.

throw in the fact that for 40 years now tax brackets have been allowing more and more income through at lower and lower tax brackets each year and even if taxes go up a bit they still may have less taxable income due.

it may be over the next decade 100k will have most of it in the 15% or less bracket.

seniors get an extra perk at 65 on their taxes as well. a 65 year old couple can pull 35k in retirement money and pay as little as 1500 bucks federal tax on it.

many are going to relocate from high tax to low or no tax states.

all in all i think most folks are going to be better off taking their deductions up front and not thinking that they will be in a higher bracket later.

there was a reason 3 years ago the irs gave all of us the incentive to do roth conversions by removing limits and letting you pay the taxes over the course of almost 3 years.

they know later on most are going to be paying less and want that money now.

with 80 million retiring baby boomers no political party is going to want to say to the masses " by the way we are raising your income tax".

the ones a roth might help are those who will be borderline for getting their social security taxed or not. those with pensions also may be better in roths but then again the pay checks really are not stopping so thats why a roth may benefit them..

when it comes to planning i always go with what was,what is and what stands a good chance of continuing.

i rarely bet on the long shot that this time things will be different. i allow for it but i do not plan around it.

Last edited by mathjak107; 07-02-2013 at 03:46 AM..
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Old 07-02-2013, 09:46 AM
Status: "Springtime!" (set 7 days ago)
 
Location: Jollyville, TX
5,849 posts, read 11,846,136 times
Reputation: 10847
Thank you all for your inputs. This was the kind of discussion I was looking for to be able to think it through.

I decided to go with the Roth for the reason that it wil provide us an extra tax free cushion if we have years where we have additional expenses or want to spend a little more.

Besides, it's easy enough to change if I decide otherwise.
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Old 07-02-2013, 10:22 AM
 
Location: Keosauqua, Iowa
9,611 posts, read 21,151,276 times
Reputation: 13662
Quote:
Originally Posted by Moonlady View Post
Thank you all for your inputs. This was the kind of discussion I was looking for to be able to think it through.

I decided to go with the Roth for the reason that it wil provide us an extra tax free cushion if we have years where we have additional expenses or want to spend a little more.

Besides, it's easy enough to change if I decide otherwise.
I think this is a good move given that you expect your income to remain stable after retirement. There's no way of knowing what the tax tables will look like 10 years from now, but I seriously doubt that taxes will decrease so paying the tax now seems like the prudent choice.
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Old 07-02-2013, 11:36 AM
 
105,761 posts, read 107,756,464 times
Reputation: 79380
Would you have thought they would have increased if you were guessing about the future 30 years ago with double digit inflation ?

I would have bet my bottom dollar we were going up.

Well they have fallen every year and continue to fall as more and more money goes through with less and less tax. ...

Last edited by mathjak107; 07-02-2013 at 11:52 AM..
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Old 07-03-2013, 01:01 PM
 
4,151 posts, read 6,843,428 times
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Quote:
Originally Posted by duster1979 View Post
It's pretty simple. What do you expect your post-retirement income to be vs. your current income? If it's going to be higher, pay the tax now and invest in the Roth. If it's going to be lower, max out the 401K.

And of course you should consider how each is performing, as well.
The THOUGHT is simple, but what you "expect" your post retirement income to be is nearly a complete guess so the answer is still tricky. I have tried to leverage both.

This is what I have posted in other threads that my wife and I did. It has worked out every well for us. I prioritized these in order and we started at #1 first year out of school and have gotten to #9 now, moving on to the next as our incomes increased and have been able to invest more.

1) Contributed to 401k up to employer match only
2) Built Emergency Fund
3) Maxed out 401k
4) Opened Roth IRA
5) Maxed out Roth IRA
6) Started contributing $100 extra on the mortgage
7) Opened a taxable mutual funds account
8) Kept bumping my monthly $ in the taxable account until it was equal to the amount I was putting into my Roth IRA
9) Started contributing $400 extra on the mortgage instead of $100 extra

Right now we are at #9 and I am kind of at a crossroads now. My next goal was to get to 1.5X the Roth IRA limit in a taxable account (I just use the Roth IRA limit as a benchmark in my taxable account) and then double the mortgage payment next. However, I am beginning to wonder if we should start SPENDING more money. Being all the way at #9 now, I feel like we are doing way more than enough for our age and should probably be spending a little more than we do.
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Old 07-03-2013, 01:15 PM
 
Location: The Triad
34,091 posts, read 82,498,922 times
Reputation: 43648
Quote:
Originally Posted by Moonlady View Post
I decided to go with the Roth...
Perhaps I missed something...
1) why was this an either/or question?
2) why would anyone turn their back on employer matching funds into a 401k?
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Old 07-03-2013, 10:39 PM
 
Location: Chapel Hill, NC, formerly NoVA and Phila
9,763 posts, read 15,702,018 times
Reputation: 10850
Quote:
Originally Posted by MrRational View Post
Perhaps I missed something...
1) why was this an either/or question?
2) why would anyone turn their back on employer matching funds into a 401k?
I believe the OP was talking about $400 above and beyond the 10% she already contributes to her 401K.
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Old 07-04-2013, 07:48 AM
 
Location: The Triad
34,091 posts, read 82,498,922 times
Reputation: 43648
Quote:
Originally Posted by michgc View Post
I believe the OP was talking about $400 above and beyond
the 10% she already contributes to her 401K.
The question was whether the current contribution number (whatever the %) maxed out the
employer contribution offer; or perhaps already exceeded that. Their OP wasn't clear on the point:
Quote:
The easiest thing to do is max out my 401K, but I'm wondering if...
If so.. then I think the OP's question was settled way, way back.
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Old 07-04-2013, 08:04 AM
Status: "Springtime!" (set 7 days ago)
 
Location: Jollyville, TX
5,849 posts, read 11,846,136 times
Reputation: 10847
Quote:
Originally Posted by MrRational View Post
The question was whether the current contribution number (whatever the %) maxed out the
employer contribution offer; or perhaps already exceeded that. Their OP wasn't clear on the point:


If so.. then I think the OP's question was settled way, way back.
From my initial post: "I currently contribute 10% to 401K with a company match of 5%."

The question was whether to contribute the additional $400 to 401K or to Roth. The decision boils down to pay taxes now or pay taxes later. I decided that I already have 95% of my investments in 401K or IRA vehicles, so I decided to go with Roth just to have the tax free option later.
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