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Sadly the OP seems fairly ignorant when it comes to finances. Ive never made a whole lot of money, but at least I understood IRAs at a fairly young age. I opened a ROTH when I was in my 40s. It is now of a significant size (to me, at least) and when I retire, I will have tax free money to add to my Social Security.
Funny the OP is so concerned about a few hundred dollars different in his social security statement, but doesnt care about a significant tax episode when he retires, depending on whether he invests in a ROTH or not.
The crazy part is he had a Roth IRA and he dissolved it. Why would anybody do that is beyond me.
Because he didn't understand the financial harm he was doing to himself. (If he had understood the financial implications, he'd have rolled that Roth 401k into a Roth IRA when he left his old employer. Then at least he'd have some money in a Roth to grow, even if he decided to forgo adding any future funds and use only a traditional 401k and IRA going forward.)
Funny the OP is so concerned about a few hundred dollars different in his social security statement, but doesnt care about a significant tax episode when he retires, depending on whether he invests in a ROTH or not.
It is ironic, isn't it? Having to pay income taxes on his SS payment would have a much bigger impact on his finances than the fluctuation on the SS website he was so worried about.
The problem with everyone on here is that they are assuming that I will be in a higher tax bracket during retirement. It is a gross assumption, and is likely wrong. During the course of my lifetime, I will be earning about $70K a year, but during retirement I will only be withdrawing about $60K a year or less from my 401k. So why on earth would my tax bracket/rate be higher?!
The problem with everyone on here is that they are assuming that I will be in a higher tax bracket during retirement. It is a gross assumption, and is likely wrong. During the course of my lifetime, I will be earning about $70K a year, but during retirement I will only be withdrawing about $60K a year or less from my 401k. So why on earth would my tax bracket/rate be higher?!
You won't be withdrawing $60k from your 401k; you'll be withdrawing the amount the government says you MUST withdraw, and if your 401k does well that could very well exceed $60k. Remember, the money you are putting in today has 30+ years to grow compounded tax-free! The RMDs on a 401k that has grown well over the next few decades could potentially put you into a higher tax bracket than the one you are in right now.
With a Roth, you could say for certain that you'll only withdraw $60k a year, because with a Roth it's YOU and not the government who decides when and how much to take out.
Are you getting it now?
(Oh, and most people's wages do go up over time, although of course that's not guaranteed.)
I opened a ROTH when I was in my 40s. It is now of a significant size (to me, at least) and when I retire, I will have tax free money to add to my Social Security.
And you have as much control over that money as you have over your personal savings account. Economy is bad? You can tighten your belt and reduce your Roth withdrawals. Stock market is booming? You can safely withdraw more and live it up a little. Social Security and your pension check are currently covering everything? Leave the money in the Roth alone, and use it only if you find you need pricey care in your old age.
What you don't face is the government telling you "This year you MUST withdraw $XXX and pay tax on it, whether you need that much money or not."
I don't think younger people quite grasp just how valuable having such total control over your retirement money can be. The benefits of no RMDs and tax-free withdrawals only really sink in when you're on the verge of actually needing the money.
Exactly..the OP is just drinking a different version of the koolaid we did when 401ks and IRAs came out and we blindly excepted the defer as much as possible because OF COURSE you will pay less taxes in retirement. Oh, and by the way we decided to make your SS taxable in the meantime, and not to index to inflation the amount you make that makes it taxable. But we do index everything else.
The problem with everyone on here is that they are assuming that I will be in a higher tax bracket during retirement. It is a gross assumption, and is likely wrong. During the course of my lifetime, I will be earning about $70K a year, but during retirement I will only be withdrawing about $60K a year or less from my 401k. So why on earth would my tax bracket/rate be higher?!
You really need to reconsider this statement. Thirty years from now $60,000 is not going to buy what it buys right now. You need to also realize that MOST people are in a lower tax bracket during retirement than they were when working. You really underestimate how much 30 years of investment will grow. When you withdraw that money in a regular IRA, you will be taxed. In a ROTH, its free money, you can withdraw how little or how much you want and it is a non issue on your tax return.
You really need to reconsider this statement. Thirty years from now $60,000 is not going to buy what it buys right now. You need to also realize that MOST people are in a lower tax bracket during retirement than they were when working. You really underestimate how much 30 years of investment will grow. When you withdraw that money in a regular IRA, you will be taxed. In a ROTH, its free money, you can withdraw how little or how much you want and it is a non issue on your tax return.
Think about it.
It still sounds like a terrible, backwards concept. Yes of course, there will be inflation. That doesn't change the fact that there's a virtually 100% chance that I will be in a lower tax bracket/rate during retirement. I don't mind paying full taxes during retirement one bit. And the RMD thing likely won't apply to me at all, because the RMD thresholds are significantly lower than what I am planning to withdraw every year anyway (based on today's dollars). I am planning to retire by the age of 67.
During my pre-retirement life, by deferring the taxes, I am able to have significantly more disposable income so that I can enjoy life NOW also. I don't care whether I pay 0% taxes or 40% taxes during retirement. I'm just a single gay guy who doesn't plan on having kids ever. Also, my parents are millionnaires, so there is a possibility that I will receive a big inheritance.
I am also willing to relocate to a low cost of living area during retirement, if necessary.
I don't care whether I pay 0% taxes or 40% taxes during retirement.
You WILL care, a lot, when you're retired. As an elderly retired person, you'll have few ways to offset a large tax bite.
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I'm just a single gay guy who doesn't plan on having kids ever.
You do realize that this means you need to save even more for retirement than the "average" person? You won't have any kids to help you out in your old age should you run into financial difficulties, and unless you split your living costs with others (either a spouse or roommates) you'll be paying proportionately more for your housing than the average person does. Being single is expensive.
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Also, my parents are millionnaires, so there is a possibility that I will receive a big inheritance.
There's also the non-zero possibility that you'll get nothing at all. They may need to spend that money on their own care. It's a mistake to count on receiving an inheritance.
Look, I don't care whether you put your money in a traditional retirement account or a Roth going forward; it's your money, and given that you live in a fairly high-tax state (if I recall correctly) the traditional account may be better for you now. But I will say that when you made the decision to dissolve your old Roth 401k rather than roll it over into a Roth IRA you did yourself some real financial harm. I will also say I've never, ever heard of any retiree complaining they have too much of their money in a Roth account, but I've heard plenty wishing they'd put less into traditional accounts and more into Roths when they had the chance to do so.
Last edited by Aredhel; 02-03-2017 at 11:41 AM..
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