<p>Yes, SOS, since 2005. First the roof, then son’s room and his bath (the wall between disintegrated), and so on. I am a believer “If it ain’t broke, don’t fix”. I thought I’d sell my house with 25 y.o. kitchen, but then d/w leaked and ruined 2/3 of the cabinets! So now I have wood floors, quartzite counters, sensor touch faucet, backsplash,…My g/f says I was dreaming that my house would sell with old kitchen (fake wood cabs, harvest orange/gold counters).</p>
<p>Now, I hope I can put lots of money away for my retirement, which I hope does not happen until I am 70. The last 10 years have been $$$$$, so could only put away the highest SEP & IRA, but nothing else.</p>
<p>That article is great. It made very clear something I didn’t fully understand when comparing Roth vs. non-Roth 401Ks: it’s not your incremental rate when you retire, but your effective rate, that controls whether a Roth makes sense, and therefore for the vast majority (outside of something really crazy happening with income taxes) the traditional 401K is better.</p>
<p>Although I wish it would have delved more quantitatively into the effect that withdrawals have on making SS benefits taxable, because apparently Roth distributions don’t get counted when calculating how much of the benefit is taxable.</p>
<p>Ok … i cant read this on the iphone?
I am going to read this later…looks interesting .</p>
<p>The $450,000 number is taxable ordinary income during retirement? </p>
<p>What happens if you reinvest the mandatory payouts during retirement comparing a regular ira to a roth?
Advantage to the roth. Correct?</p>
<p>If I am 71 and I have to withdraw and play the taxes from a regular ira, then I reinvest that money and cash out at 81, i have to pay cap gains taxes and taxes on dividends. With a roth, I dont. I get an extra 10 years of tax deferred income with a roth? Dont I?</p>
Maybe, maybe not. You’d have to run the numbers. Depending on what the final effective rate will be, vs. the marginal rate at which contributions were made, the traditional IRA may still come out ahead. An income that today puts your marginal rate at 28% will likely have an effective rate of 19-20% when you retire. Will this make up for paying cap gains taxes on a small amount of your portfolio? I dunno… I suspect most people will not be replacing 100% of their income with IRA withdrawals, so their effective tax rate will be even lower than 19-20%.</p>
<p>The analysis in the article assumes you actually use the withdrawals to fund your retirement. If you are using the IRA for other purposes, such as estate planning, then the answer might change.</p>
<p>We’ve done minor research into Roth vs tax deferred 401K a few times. There are pros/cons, and we’ve decided to continue with all as traditional IRA. One logistic advantage is that it will be simpler for all to be same (taxable). </p>
<p>Notrichenough, are you saying that with tax brackets being adjusted for inflation, people with similar incomes in the present and future may see lower tax rates in the future? I am not disagreeing with you. I have said this myself. :)</p>
<p>I could look at all possible projections of what could happen in the future, and the obvious is to invest as much as you can in both the Roth and the 401K. I guess it gets more complicated if you have the option of the Roth 401K, and you can only make a decision of either/or. Wonder if you could do half Roth 401K, half regular.</p>
<p>But I could look at all the charts possible, and I am certain that the conversion we did awhile ago to a Roth was the smartest financial decision possible, as long as the taxes were paid outside of the Roth. No RMD’s, aggressively invested, no taxes ever. Now if you paid taxes using your IRA funds, not such a great idea.</p>
<p>I am still trying to digest the article but my understanding is roughly speaking when you contribute, the tax saving is calculated at the marginal rate and when you take the distribution, it is taxed at the effective tax rate. That means unless your marginal rate while earning is lower than your effective rate after retirement there’s no advantage in roth. It may be advantageous if your after retirement income is so high your distribution is taxed at the marginal tax rate</p>
No, what I am saying is that their effective rate will be lower than their marginal rate. I don’t think the marginal rates will be dropping any time soon.</p>
<p>I’m also saying people will make less in retirement (in constant dollars) than they will while working, so their marginal rates might very well be less, too.</p>
Paying the taxes with additional money is addressed in the paper in sections called “side fund analysis” and “evaluation of side find analysis”. Depending on the assumptions used, and Roth can be either better or worse than the traditional.</p>
<p>In your case, IIRC, you will both be getting large pensions. If you don’t intend to take distributions to fund your retirement, it changes the situation and the Roth may be more advantageous.</p>
<p>Too bad the charts, analysis and formulas can’t take into account human nature. The fact that we borrowed from our HELOC and multiple low interest rate credit cards to pay for our Roth conversion, has made us feel broke for some time. Always paying off debt, never feeling like we have extra cash. Some people may think that is a bad thing, but for us, it has made us watch our spending far more than we would have. I don’t know how one can plan for that.</p>
<p>It is a very interesting article though. Haven’t seen anything broken down in such a detailed fashion before.</p>
<p>One thing the article stirs up is muni bond interest. Tax free muni bond interest can increase your medicare premiums. Also…it can cause your SS to be taxable. </p>
<p>^ Yes, which makes me wonder why Roth distributions don’t do the same thing. Seems like a no-brainer (although if I had a Roth I’m sure I’d have a different opinion. )</p>
<p>Do Roth distributions count when calculating the Obamacare subsidy?</p>
<p>Much depends on what you want to do with the Roth. If you will have enough income in retirement not to need those funds, having it in a Roth is great, because you can pass it to spouse and heirs taxfree and don’t have to take required minimum distributions. </p>
<p>We had always figured our retirement income would be substantially lower than our income while working and affect our tax rates. We were wrong, but based our info on what we knew at the time. </p>
<p>“Man plans, God laughs,” happened to us. </p>
<p>It feels good to have Roth, tax deferred IRAs and 401ks, so you can pick which resources to draw from in retirement and as needed. We plan to delay using the Roth as long as possible, letting it grow and compound taxfree. </p>
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