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Whenever I see a thread on Roth IRAs they seem to get trounced by most everyone. How did they ever come about when they seem to be recommended in no circumstances? Or perhaps it's just that everyone on here (and other financial interest websites/forums) are so well-off that it doesn't work for THEM?
I'm trying to hedge my bets a little by having both traditional and Roth - in a 75% / 25% proportion. I'm hopefully 10 years out from retiring and in the 25% bracket - expecting the usual SS and a moderate pension.
The appreciation for a Roth IRA will come later in life when withdrawals are 100% tax free.
No minimum RMD and benefits to your estate and heirs.
Not counted for medicare premiums and not counted for taxing your SS.
who ever feels negatively about a roth is likely clueless about the decumulation stage and retirement planning .
there are so many things they likely do no know are linked to taxable income that unless they get an education on the 2nd half of the game they likely will shoot themselves in the foot like i did thinking i knew all i needed to know .
Roth make sense when you are in a higher tax bracket in retirement than you were when you earned the money, or have sufficient time before retirement that the funds can grow at a higher than inflation rate. Most people are in a lower tax bracket once they retire, so the pre tax plan works out better.
If there is a need to withdraw a large sum after the age of 59.5(?), you would avoid going into a higher bracket, if you take out Roth funds..
forget worrying about whether tax rates will be higher or lower for the most part . there are so many major issues tied to your taxable retirement income whether rates change or not .
having just retired and learning all i could far to late about retirement i realized the thinking above about taking the tax deduction now was a huge mistake because i was missing all the other things i did not know about until to late ..
will your social security get taxed with roths or not is a major issue , don't know ? err on the side of caution and shoot for as much tax free income in retirement as you can because getting tens of thousands of dollars taxed a year at 85% when you didn't have to get any taxed is a huge issue .. .
will you retire at 62 and need medical insurance ? a subsidized aca plan is tied to taxable income . had i had roth income i would be getting a few thousand a year from 62 to 65 in medical insurance subsidy .
if your taxable income goes over certain levels you pay more for medicare - as much as almost 2x .
there are aca tax surcharges if your income is high enough as well and those are in addition to paying more for medicare . .
what will happen when those rmd's kick in at 70-1/2 ? how will your tax rate jump and will any of the above trigger points be hit ?
what will you do with the money you have to take out in rmd's ? if you are going to reinvest it in a taxable account then you get hit there tax wise forever going forward . a roth would have all future gains and distributions tax free with no rmd's . that reinvested rmd mone you had to take by not having roths is now going to be taxed forever going forward from 70-1/2 on .
the biggest question is what does your job potential look like .
if like most careers you start out in very low tax brackets and ramp up over decades higher and higher odds are your average tax rate will be lower than your final years working .
folks ,make this mistake all the time , they judge by looking at only their final years income and go once the pay checks stop we will be in a lower tax bracket .
but that isn't the whole story . it is all about what was your careers lifetime average tax bracket ?
odds are it lower than your final years and you will actually be in higher tax bracket at retirement then your long term average making the roth a clear winner .
just this fact alone can give yo 20% more spendable cash in retirement making a roth the clear cut winner even if tax rates stay the same or even go down .
unless you enter the work force already in the highest brackets like a doctor or lawyer then there is a good chance roths will be a slam dunk in the end .
forget worrying about whether tax rates will be higher or lower for the most part . there are so many major issues tied to your taxable retirement income whether rates change or not .
<snip a bunch of stuff I've learned over the last 4 months>
I really wish I'd known all this stuff years ago. It's a no-brainer for me to shift my $24,000/year "catch-up" contribution over to a Roth 401(k) for my last 8 work years.
I really wish I'd known all this stuff years ago. It's a no-brainer for me to shift my $24,000/year "catch-up" contribution over to a Roth 401(k) for my last 8 work years.
It's not always a no brainer. It depends on the individual situation. I will be at a lower bracket when I retire. I was in the highest bracket maybe 10-15 years ago. Yet I have more assets now.
Whenever I see a thread on Roth IRAs they seem to get trounced by most everyone. How did they ever come about when they seem to be recommended in no circumstances? Or perhaps it's just that everyone on here (and other financial interest websites/forums) are so well-off that it doesn't work for THEM?
I'm trying to hedge my bets a little by having both traditional and Roth - in a 75% / 25% proportion. I'm hopefully 10 years out from retiring and in the 25% bracket - expecting the usual SS and a moderate pension.
Guess it is each persons opinion. The question is is their opinion based on facts?
I think ROTH's are very good. Especially teenagers and workers just starting out. If you do not earn enough to pay taxes then you should be investing in a ROTH. Same is true if you pay very little in taxes.
As your income increases and your age the answer may change. Part of the answer is depends on what you are going to do with the ROTH. Spend it or pass it on to your beneficiaries. If you are passing on to beneficiaries you want a ROTH.
Assuming most of use do not know which is best I would invest in a mix of both. When paying little or no tax go ROTH, as your income increases go more toward the 401k, IRA etc.
Whenever I see a thread on Roth IRAs they seem to get trounced by most everyone. How did they ever come about when they seem to be recommended in no circumstances? Or perhaps it's just that everyone on here (and other financial interest websites/forums) are so well-off that it doesn't work for THEM?
reneeh63,
I only occasionally browse the CD personal finance forum & few other online finance forums so I could not tell whether Roth IRA was trounced often or not.
Most if not all financial articles that I have read have always touted the benefits of Roth IRA which I totally agree especially when RMD is looming in a near horizon for my husband.
We have tried to contribute to Roth IRA the moment it was made available. Unfortunately, the ratios of our Roth IRAs to our IRA + 401K are very small due the fact that our incomes were higher than the max limits for Roth IRA contributions. Not until few years ago that one could convert unlimited amount of IRA to Roth IRA but this triggers income tax.
We plan to do the conversion next year when our income is low. We hope to shift as much as possible of our 401K + IRA to Roth IRA before the RMD kicks in (and maybe even after). I will need to gather information and start some spreadsheet calculations to figure out how much to convert to stay within a reasonable tax bracket.
From my POV, I see Roth IRAs benefits everybody whether they are well off or not.
Ive never made a lot of money, but when I opened my Roth 30 years ago, I figured no matter what happened between then and retirement, it had to be a good thing if my retirement money grew and would be taken out tax free. Possibly the best decision I ever made in my lifetime.
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