The beauty of this extremely well moderated board is that it doesn't allow itself to get into meaningless back and forth posts attempting to "win". Since we are discussing personal finance, it is important to point out that everyone is free to do what they want, and are not beholden to what others type. You have your beliefs, and can act accordingly. He has his, and can do the same.BlueOrange10 wrote: ↑Sun Apr 11, 2021 10:56 amYou never answered my question. Does the tax exempt benefit of social security increase with inflation?jason2459 wrote: ↑Sun Apr 11, 2021 10:53 amBlueOrange10 wrote: ↑Sun Apr 11, 2021 10:50 amIt's not speculation. You can go to the social security website and figure how much in future dollars your social security will be worth 30 years from now. Are you telling me the benefit you get from having social security exempt from taxes doesn't increase with inflation?jason2459 wrote: ↑Sun Apr 11, 2021 10:46 amYou posted about 30 years from now. That's pure speculation.BlueOrange10 wrote: ↑Sun Apr 11, 2021 10:43 am
Not speculation.
https://www.google.com/amp/s/weartv.com ... -employees
Again, you posted about speculating what is going to happen with labor shortages and what states may do with social security payments in 30 years.
Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
My understanding is the difference and maybe a moderator will weigh in... Individual pending legislation creates a lot of noise while going through the legislative process.... Whereas "i want to create a plan that assumes we have moderate tax increases over the next 50 years" is a plan assumption...AnEngineer wrote: ↑Sun Apr 11, 2021 11:44 amThis is at odds with what is posted on every thread locked for discussing future legislation/ law changes:Soon2BXProgrammer wrote: ↑Sat Apr 10, 2021 1:54 pmWe can't discuss a given legislative proposal... That is different then talk about "future tax rates as a whole". (or that's my understanding)AnEngineer wrote: ↑Sat Apr 10, 2021 12:16 pmIt's going to be especially unpopular here (from what I glean of the central thesis as expressed in this thread) as the forum rules specifically advance the thought that considering the possibility of future tax law changes is a bad idea.Soon2BXProgrammer wrote: ↑Sat Apr 10, 2021 11:34 amHaven't read it, but I've seen his argument elsewhere. While unpopular with bogleheads, i err on the side of Roth with its a 50-50 split decision... Ed might say you should err even more on that side. The argument is that it helps take the risk of future tax rates out of the plan. (and phantom taxes out of the plan.. ACA / IRMMA /FAFSA /etc)EagertoLearnMore wrote: ↑Sat Apr 10, 2021 8:52 am I'm reading the newest version of Ed Slott's book about retirement savings time bomb, meaning traditional IRA accounts. I have viewed him on PBS and thought he talked quite a bit and could be more succinct. Now I'm trying to get through the book and having great difficulty as the verbiage is so profuse. He writes with even more words than he talks. It literally takes him many pages to get to a thought. I'm reading this book digitally, as I borrowed it from the library. So other than wait a few weeks in a queue to get the book, it's free to read. My personal opinion is that I'm fortunate I did not purchase the book as I would be a very disappointed Boglehead.
The people on this forum provide as much (sometimes more) pertinent information than reading the book. Have others looked at his newest version of the book and your opinions?
Paula Pant interviewed him: https://affordanything.com/307-the-tax- ... -ed-slott/
However:
https://www.bogleheads.org/wiki/Traditional_versus_Rotheven talks about general future tax rate changes.But if you have strong feelings that taxes will go up or down in the future, you could make adjustments to these numbers.
It is a fact that rates are near all time lows (depending on what tax bracket your in..).and having the flexibility to control your taxable income to some degree might allow you to better optimize around future tax laws.
Even under current law, taxes are scheduled to go up when the TCJA expires.The whole point of the policy is to (1) eliminate contentious disagreements that result from these discussions and (2) keep investors from making bad decisions. Proposed legislation changes many times between the time it's introduced and signed into law
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
We need to be knowledgeable about the tax brackets, and actual tax burden.
Last year I did a TIRA to Roth conversion, so larger than normal income. Went almost to the top of 22% bracket of $171,050.
$197,781 - Total Income
$170,381 - Total Taxable Income
$29,064 - Total Income Tax
That tax works out to be 14.69% of our total income.
Frankly, that isn't much of a load for DW and I, especially since I now have another $100,000+ in my Roth.
Broken Man 1999
Last year I did a TIRA to Roth conversion, so larger than normal income. Went almost to the top of 22% bracket of $171,050.
$197,781 - Total Income
$170,381 - Total Taxable Income
$29,064 - Total Income Tax
That tax works out to be 14.69% of our total income.
Frankly, that isn't much of a load for DW and I, especially since I now have another $100,000+ in my Roth.
Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Excellent points. I also think part of the disdain for discussing proposed legislation is that it invariably will lead to the tribalized partisan bickering in today's climate.Soon2BXProgrammer wrote: ↑Sun Apr 11, 2021 11:53 amMy understanding is the difference and maybe a moderator will weigh in... Individual pending legislation creates a lot of noise while going through the legislative process.... Whereas "i want to create a plan that assumes we have moderate tax increases over the next 50 years" is a plan assumption...AnEngineer wrote: ↑Sun Apr 11, 2021 11:44 amThis is at odds with what is posted on every thread locked for discussing future legislation/ law changes:Soon2BXProgrammer wrote: ↑Sat Apr 10, 2021 1:54 pmWe can't discuss a given legislative proposal... That is different then talk about "future tax rates as a whole". (or that's my understanding)AnEngineer wrote: ↑Sat Apr 10, 2021 12:16 pmIt's going to be especially unpopular here (from what I glean of the central thesis as expressed in this thread) as the forum rules specifically advance the thought that considering the possibility of future tax law changes is a bad idea.Soon2BXProgrammer wrote: ↑Sat Apr 10, 2021 11:34 am
Haven't read it, but I've seen his argument elsewhere. While unpopular with bogleheads, i err on the side of Roth with its a 50-50 split decision... Ed might say you should err even more on that side. The argument is that it helps take the risk of future tax rates out of the plan. (and phantom taxes out of the plan.. ACA / IRMMA /FAFSA /etc)
Paula Pant interviewed him: https://affordanything.com/307-the-tax- ... -ed-slott/
However:
https://www.bogleheads.org/wiki/Traditional_versus_Rotheven talks about general future tax rate changes.But if you have strong feelings that taxes will go up or down in the future, you could make adjustments to these numbers.
It is a fact that rates are near all time lows (depending on what tax bracket your in..).and having the flexibility to control your taxable income to some degree might allow you to better optimize around future tax laws.
Even under current law, taxes are scheduled to go up when the TCJA expires.The whole point of the policy is to (1) eliminate contentious disagreements that result from these discussions and (2) keep investors from making bad decisions. Proposed legislation changes many times between the time it's introduced and signed into law
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
^ You're free to make whatever "plan assumptions" you want, but if you're trying to solicit feedback on a hypothetical future state of law you're going to open it up for all kinds of wild assumptions about the possibility of the future. What if income tax moves to a flat tax and/or national sales tax
The math calculations will be whatever they will be, and it's possible to ask how to calculate a formula about your assumption without bringing an underlying narrative of the future with it.
The math calculations will be whatever they will be, and it's possible to ask how to calculate a formula about your assumption without bringing an underlying narrative of the future with it.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
What was your effective tax rate?RetiredAL wrote: ↑Sat Apr 10, 2021 11:31 pm
Cold hard fact I found now that I am retired: With our $50K in SS, anything past approx $25K additional ($75K gross) puts us into the current 22% bracket. So every $ I convert to my Roth, I pay 22% as Fed Taxes. As a comparison, 22% normally starts around $115K gross for working folks.
I own the next hot stock- VTSAX
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Here is a clear counter example. No pending legislation is discussion, only the possibility of social security changing:Soon2BXProgrammer wrote: ↑Sun Apr 11, 2021 11:53 amMy understanding is the difference and maybe a moderator will weigh in... Individual pending legislation creates a lot of noise while going through the legislative process.... Whereas "i want to create a plan that assumes we have moderate tax increases over the next 50 years" is a plan assumption...AnEngineer wrote: ↑Sun Apr 11, 2021 11:44 amThis is at odds with what is posted on every thread locked for discussing future legislation/ law changes:Soon2BXProgrammer wrote: ↑Sat Apr 10, 2021 1:54 pmWe can't discuss a given legislative proposal... That is different then talk about "future tax rates as a whole". (or that's my understanding)AnEngineer wrote: ↑Sat Apr 10, 2021 12:16 pmIt's going to be especially unpopular here (from what I glean of the central thesis as expressed in this thread) as the forum rules specifically advance the thought that considering the possibility of future tax law changes is a bad idea.Soon2BXProgrammer wrote: ↑Sat Apr 10, 2021 11:34 am
Haven't read it, but I've seen his argument elsewhere. While unpopular with bogleheads, i err on the side of Roth with its a 50-50 split decision... Ed might say you should err even more on that side. The argument is that it helps take the risk of future tax rates out of the plan. (and phantom taxes out of the plan.. ACA / IRMMA /FAFSA /etc)
Paula Pant interviewed him: https://affordanything.com/307-the-tax- ... -ed-slott/
However:
https://www.bogleheads.org/wiki/Traditional_versus_Rotheven talks about general future tax rate changes.But if you have strong feelings that taxes will go up or down in the future, you could make adjustments to these numbers.
It is a fact that rates are near all time lows (depending on what tax bracket your in..).and having the flexibility to control your taxable income to some degree might allow you to better optimize around future tax laws.
Even under current law, taxes are scheduled to go up when the TCJA expires.The whole point of the policy is to (1) eliminate contentious disagreements that result from these discussions and (2) keep investors from making bad decisions. Proposed legislation changes many times between the time it's introduced and signed into law
viewtopic.php?f=2&t=343877
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Why even convert to Roth? There's no compulsion to pre-pay taxes at a 22% (or whatever the top marginal bracket your reach) rate rather than withdraw the money as you need it at a likely lower blended tax rate.WhyNotUs wrote: ↑Sun Apr 11, 2021 12:08 pmWhat was your effective tax rate?RetiredAL wrote: ↑Sat Apr 10, 2021 11:31 pm
Cold hard fact I found now that I am retired: With our $50K in SS, anything past approx $25K additional ($75K gross) puts us into the current 22% bracket. So every $ I convert to my Roth, I pay 22% as Fed Taxes. As a comparison, 22% normally starts around $115K gross for working folks.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Acknowledged, I would appeal to the moderators on that one. I would also make sure to frame up that specific issue based on current law and what is scheduled to happen under current law if congress does nothing.AnEngineer wrote: ↑Sun Apr 11, 2021 12:11 pmHere is a clear counter example. No pending legislation is discussion, only the possibility of social security changing:Soon2BXProgrammer wrote: ↑Sun Apr 11, 2021 11:53 amMy understanding is the difference and maybe a moderator will weigh in... Individual pending legislation creates a lot of noise while going through the legislative process.... Whereas "i want to create a plan that assumes we have moderate tax increases over the next 50 years" is a plan assumption...AnEngineer wrote: ↑Sun Apr 11, 2021 11:44 amThis is at odds with what is posted on every thread locked for discussing future legislation/ law changes:Soon2BXProgrammer wrote: ↑Sat Apr 10, 2021 1:54 pmWe can't discuss a given legislative proposal... That is different then talk about "future tax rates as a whole". (or that's my understanding)AnEngineer wrote: ↑Sat Apr 10, 2021 12:16 pm
It's going to be especially unpopular here (from what I glean of the central thesis as expressed in this thread) as the forum rules specifically advance the thought that considering the possibility of future tax law changes is a bad idea.
However:
https://www.bogleheads.org/wiki/Traditional_versus_Rotheven talks about general future tax rate changes.But if you have strong feelings that taxes will go up or down in the future, you could make adjustments to these numbers.
It is a fact that rates are near all time lows (depending on what tax bracket your in..).and having the flexibility to control your taxable income to some degree might allow you to better optimize around future tax laws.
Even under current law, taxes are scheduled to go up when the TCJA expires.The whole point of the policy is to (1) eliminate contentious disagreements that result from these discussions and (2) keep investors from making bad decisions. Proposed legislation changes many times between the time it's introduced and signed into law
viewtopic.php?f=2&t=343877
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Soon2BXProgrammer wrote: ↑Sun Apr 11, 2021 12:21 pmAcknowledged, I would appeal to the moderators on that one. I would also make sure to frame up that specific issue based on current law and what is scheduled to happen under current law if congress does nothing.AnEngineer wrote: ↑Sun Apr 11, 2021 12:11 pmHere is a clear counter example. No pending legislation is discussion, only the possibility of social security changing:Soon2BXProgrammer wrote: ↑Sun Apr 11, 2021 11:53 amMy understanding is the difference and maybe a moderator will weigh in... Individual pending legislation creates a lot of noise while going through the legislative process.... Whereas "i want to create a plan that assumes we have moderate tax increases over the next 50 years" is a plan assumption...AnEngineer wrote: ↑Sun Apr 11, 2021 11:44 amThis is at odds with what is posted on every thread locked for discussing future legislation/ law changes:Soon2BXProgrammer wrote: ↑Sat Apr 10, 2021 1:54 pm
We can't discuss a given legislative proposal... That is different then talk about "future tax rates as a whole". (or that's my understanding)
However:
https://www.bogleheads.org/wiki/Traditional_versus_Roth
even talks about general future tax rate changes.
It is a fact that rates are near all time lows (depending on what tax bracket your in..).
Even under current law, taxes are scheduled to go up when the TCJA expires.The whole point of the policy is to (1) eliminate contentious disagreements that result from these discussions and (2) keep investors from making bad decisions. Proposed legislation changes many times between the time it's introduced and signed into law
viewtopic.php?f=2&t=343877
Can you please clarify the policy on "future tax rates"? Is it we can't talk about pending legislation? Is it we can't make assumption about the future?LadyGeek wrote: Paging LadyGeek
If we talk about SS, is it ok to assume benefit cuts, because that is what is going to happen under current law?
the TCJA is going to expire, hence tax rates are scheduled to rise? is that ok?
Please provide some clarification..
Thanks.
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
California doesn't tax SS benefits. By the way, I keep seeing the term Cali to refer to the State of California. Generally, those of us in California simply use CA (or So Cal to refer to the sprawling LA basin). "Cali" must be a Midwest or East Coast term!Ed 2 wrote: ↑Sun Apr 11, 2021 8:32 amDon’t forget about state taxes. Many will be living in other states like Cali. Want it or notlivesoft wrote: ↑Sun Apr 11, 2021 8:29 amSo if one is making $40K from SS benefits, "tens of thousands" would be at least $20K of taxes on it. OK.BlueOrange10 wrote: ↑Sun Apr 11, 2021 8:24 amThe "standard deduction" for social security is actually not indexed to inflation, so more people will pay taxes on their social security each year.
An important key to investing is having a well-calibrated sense of your future regret.
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Each person may make his/her own assumptions as to future tax rates.
There’s no way to predict future tax rates over a long period of time. During my career the top rate has been as high as 70% and as low as 28%.
I generally use the law as it’s currently scheduled to be in effect.
To the extent you can convert at what’s likely to be a low bracket the odds are in your favor though it may turn out to have been wrong. However to the extent you don’t convert at what’s likely to be a low bracket it may turn out well but the odds are against you.
There’s no way to predict future tax rates over a long period of time. During my career the top rate has been as high as 70% and as low as 28%.
I generally use the law as it’s currently scheduled to be in effect.
To the extent you can convert at what’s likely to be a low bracket the odds are in your favor though it may turn out to have been wrong. However to the extent you don’t convert at what’s likely to be a low bracket it may turn out well but the odds are against you.
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
BernardShakey wrote: ↑Sun Apr 11, 2021 12:40 pmCalifornia doesn't tax SS benefits. By the way, I keep seeing the term Cali to refer to the State of California. Generally, those of us in California simply use CA (or So Cal to refer to the sprawling LA basin). "Cali" must be a Midwest or East Coast term!Ed 2 wrote: ↑Sun Apr 11, 2021 8:32 amDon’t forget about state taxes. Many will be living in other states like Cali. Want it or notlivesoft wrote: ↑Sun Apr 11, 2021 8:29 amSo if one is making $40K from SS benefits, "tens of thousands" would be at least $20K of taxes on it. OK.BlueOrange10 wrote: ↑Sun Apr 11, 2021 8:24 amThe "standard deduction" for social security is actually not indexed to inflation, so more people will pay taxes on their social security each year.
Or just a generational thing.
https://en.m.wikipedia.org/wiki/Going_B ... ol_J_song)
"In the short run, the stock market is a voting machine; in the long run, it is a weighing machine" ~Benjamin Graham
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Ah, maybe so. Love the LL Cool J reference. I'll have ask my 20-something kids about this!jason2459 wrote: ↑Sun Apr 11, 2021 12:44 pmBernardShakey wrote: ↑Sun Apr 11, 2021 12:40 pmCalifornia doesn't tax SS benefits. By the way, I keep seeing the term Cali to refer to the State of California. Generally, those of us in California simply use CA (or So Cal to refer to the sprawling LA basin). "Cali" must be a Midwest or East Coast term!Ed 2 wrote: ↑Sun Apr 11, 2021 8:32 amDon’t forget about state taxes. Many will be living in other states like Cali. Want it or notlivesoft wrote: ↑Sun Apr 11, 2021 8:29 amSo if one is making $40K from SS benefits, "tens of thousands" would be at least $20K of taxes on it. OK.BlueOrange10 wrote: ↑Sun Apr 11, 2021 8:24 amThe "standard deduction" for social security is actually not indexed to inflation, so more people will pay taxes on their social security each year.
Or just a generational thing.
https://en.m.wikipedia.org/wiki/Going_B ... ol_J_song)
An important key to investing is having a well-calibrated sense of your future regret.
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
I am from So Cal) more specific from LA. We use this term here.BernardShakey wrote: ↑Sun Apr 11, 2021 12:40 pmCalifornia doesn't tax SS benefits. By the way, I keep seeing the term Cali to refer to the State of California. Generally, those of us in California simply use CA (or So Cal to refer to the sprawling LA basin). "Cali" must be a Midwest or East Coast term!Ed 2 wrote: ↑Sun Apr 11, 2021 8:32 amDon’t forget about state taxes. Many will be living in other states like Cali. Want it or notlivesoft wrote: ↑Sun Apr 11, 2021 8:29 amSo if one is making $40K from SS benefits, "tens of thousands" would be at least $20K of taxes on it. OK.BlueOrange10 wrote: ↑Sun Apr 11, 2021 8:24 amThe "standard deduction" for social security is actually not indexed to inflation, so more people will pay taxes on their social security each year.
"The fund industry doesn't have a lot of heroes, but he (Bogle) is one of them," Russ Kinnel
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
I calc'd Eff Rate = AGI / Tax DueWhyNotUs wrote: ↑Sun Apr 11, 2021 12:08 pmWhat was your effective tax rate?RetiredAL wrote: ↑Sat Apr 10, 2021 11:31 pm
Cold hard fact I found now that I am retired: With our $50K in SS, anything past approx $25K additional ($75K gross) puts us into the current 22% bracket. So every $ I convert to my Roth, I pay 22% as Fed Taxes. As a comparison, 22% normally starts around $115K gross for working folks.
2015: 10.2% (15% rate in effect) (last full year of work)
2020: 7.9% (12% rate in effect)
In 2020, I was approx $15K into the 22% SS hump due to Roth conversion.
If in 2020, in addition to our SS $, had I withdrawn or converted to my 2015 AGI level, my effective tax rate would have been approx 9.2% in a 12% rate environment, and that is with only 85% of the SS being taxable.
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Social Security doesn't have it's own standard deduction. All taxed income is subject to the same standard deduction which does increase by inflation every year. If one itemizes, it could potentially increase by even more than inflation, but I don't think that's something to look forward to.BlueOrange10 wrote: ↑Sun Apr 11, 2021 8:24 amThe "standard deduction" for social security is actually not indexed to inflation, so more people will pay taxes on their social security each year. It's like how more people are being affected by the alternative minimum tax (AMT) each year. The stealth tax increases will get ya in the end
The exempt portion of social security is still at 1983 numbers, I would imagine everyone should plan for 85% of their SS to be taxed, if they fall into one of the lower SS brackets, it's a bonus.
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
What is the significance of effective tax rates in the context of Roth Conversions?RetiredAL wrote: ↑Sun Apr 11, 2021 1:10 pmI calc'd Eff Rate = AGI / Tax DueWhyNotUs wrote: ↑Sun Apr 11, 2021 12:08 pmWhat was your effective tax rate?RetiredAL wrote: ↑Sat Apr 10, 2021 11:31 pm
Cold hard fact I found now that I am retired: With our $50K in SS, anything past approx $25K additional ($75K gross) puts us into the current 22% bracket. So every $ I convert to my Roth, I pay 22% as Fed Taxes. As a comparison, 22% normally starts around $115K gross for working folks.
2015: 10.2% (15% rate in effect) (last full year of work)
2020: 7.9% (12% rate in effect)
In 2020, I was approx $15K into the 22% SS hump due to Roth conversion.
If in 2020, in addition to our SS $, had I withdrawn or converted to my 2015 AGI level, my effective tax rate would have been approx 9.2% in a 12% rate environment, and that is with only 85% of the SS being taxable.
With our progressive tax rates, what really matters when selecting whether or how much to convert, it is the marginal rate that matters. The fact that one paid lower rates for other income does not seem to have any bearing on that decision.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
My advice is diversify your tax-location just like your asset allocation.
For decades, I always assumed (with good reason) that I would have a lower tax rate in retirement so went all in on pre-tax retirement deferrals. Well, behold here I am in the final stretch before retirement and I really really wish I had a lot more money in Roth as my retirement tax rates will be either equivalent or higher (most surely after one of us dies). I don't have enough time to fix it now even with pre-SS conversions.
In very few case do I see a serious error in splitting the retirement funds 50/50 pre-tax and Roth. It mitigates risks from future tax law changes as well improvements or decreases in your retirement balance.
There are exceptions like young earners with low or no tax liability where all the retirement money should go in Roth until income increases.
Even very high income earners at maximum rates should have a portion in Roth so they use it to mitigate marginal tax woes or future changes in tax law. Roth also has the advantage of decreasing estate size at death thus potentially lessening the impact of Estate taxes.
Mike Piper recently had a great article on why you should be humble about trying to optimize tax-related strategies. I personally look to mitigate and optimize only in the near-term (< 5 years) when it is a slam dunk.
Predicting Tax Legislation is Harder Than Timing the Market
For decades, I always assumed (with good reason) that I would have a lower tax rate in retirement so went all in on pre-tax retirement deferrals. Well, behold here I am in the final stretch before retirement and I really really wish I had a lot more money in Roth as my retirement tax rates will be either equivalent or higher (most surely after one of us dies). I don't have enough time to fix it now even with pre-SS conversions.
In very few case do I see a serious error in splitting the retirement funds 50/50 pre-tax and Roth. It mitigates risks from future tax law changes as well improvements or decreases in your retirement balance.
There are exceptions like young earners with low or no tax liability where all the retirement money should go in Roth until income increases.
Even very high income earners at maximum rates should have a portion in Roth so they use it to mitigate marginal tax woes or future changes in tax law. Roth also has the advantage of decreasing estate size at death thus potentially lessening the impact of Estate taxes.
Mike Piper recently had a great article on why you should be humble about trying to optimize tax-related strategies. I personally look to mitigate and optimize only in the near-term (< 5 years) when it is a slam dunk.
Predicting Tax Legislation is Harder Than Timing the Market
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Because when one of us dies, the survivor will be taxed a lot harder, both from rates and the loss of 1/2 the deduction. My modeling, which assumed the same income would be needed to support the same lifestyle, said the actual tax bill to the survivor will double. Much of the survivor's income will be taxed at 22% and the SS hump points will be into the mid 30's. There is one short burst from the hump into the 40's. I see it as a classic case of pay me this amount now, or pay me more later. So I modestly convert.JoMoney wrote: ↑Sun Apr 11, 2021 12:16 pmWhy even convert to Roth? There's no compulsion to pre-pay taxes at a 22% (or whatever the top marginal bracket your reach) rate rather than withdraw the money as you need it at a likely lower blended tax rate.WhyNotUs wrote: ↑Sun Apr 11, 2021 12:08 pmWhat was your effective tax rate?RetiredAL wrote: ↑Sat Apr 10, 2021 11:31 pm
Cold hard fact I found now that I am retired: With our $50K in SS, anything past approx $25K additional ($75K gross) puts us into the current 22% bracket. So every $ I convert to my Roth, I pay 22% as Fed Taxes. As a comparison, 22% normally starts around $115K gross for working folks.
Math-wise, I should convert more, but right now the taxes are being paid for by withdrawals/conversions. Using/burning IRA to Roth money on taxes is not the most prudent choice today, not knowing what Long Term Care Costs may happen in the future.
ETA: I am very glad is chose in the early years of Roths to fully fund our Roth's over higher funding of deferred into my 401K or into DW's IRA.
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
I concur. I'm glad I fully funded out Roth's over further funding into deferred. I did not then understand the magnitude of this during retirement when I started our Roth's in the late nineties.retiringwhen wrote: ↑Sun Apr 11, 2021 1:26 pm My advice is diversify your tax-location just like your asset allocation.
For decades, I always assumed (with good reason) that I would have a lower tax rate in retirement so went all in on pre-tax retirement deferrals. Well, behold here I am in the final stretch before retirement and I really really wish I had a lot more money in Roth as my retirement tax rates will be either equivalent or higher (most surely after one of us dies). I don't have enough time to fix it now even with pre-SS conversions.
In very few case do I see a serious error in splitting the retirement funds 50/50 pre-tax and Roth. It mitigates risks from future tax law changes as well improvements or decreases in your retirement balance.
There are exceptions like young earners with low or no tax liability where all the retirement money should go in Roth until income increases.
Even very high income earners at maximum rates should have a portion in Roth so they use it to mitigate marginal tax woes or future changes in tax law. Roth also has the advantage of decreasing estate size at death thus potentially lessening the impact of Estate taxes.
Mike Piper recently had a great article on why you should be humble about trying to optimize tax-related strategies. I personally look to mitigate and optimize only in the near-term (< 5 years) when it is a slam dunk.
Predicting Tax Legislation is Harder Than Timing the Market
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
What states tax Roth IRA withdrawals? I am not aware of any.Chip wrote: ↑Sun Apr 11, 2021 10:38 amThen you should also find it hard to believe that states will exempt retirees from millions in Roth account withdrawals.BlueOrange10 wrote: ↑Sun Apr 11, 2021 10:22 am I find it hard to believe states will exempt retirees from millions in social security benefits 30 years from now when social security benefits grow due to inflation. There will be a labor shortage for states trying to shift the tax burden to the workers
Tony
John C. Bogle: “Simplicity is the master key to financial success."
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
nah, LL Cool J is a New Yawker, i.e., East Coast term.BernardShakey wrote: ↑Sun Apr 11, 2021 12:48 pmAh, maybe so. Love the LL Cool J reference. I'll have ask my 20-something kids about this!jason2459 wrote: ↑Sun Apr 11, 2021 12:44 pmBernardShakey wrote: ↑Sun Apr 11, 2021 12:40 pmCalifornia doesn't tax SS benefits. By the way, I keep seeing the term Cali to refer to the State of California. Generally, those of us in California simply use CA (or So Cal to refer to the sprawling LA basin). "Cali" must be a Midwest or East Coast term!
Or just a generational thing.
https://en.m.wikipedia.org/wiki/Going_B ... ol_J_song)
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Tax brackets keep track with CPI. I don't know what 'stealth tax increases' you're referring to other than perhaps the taxation of SS benefits that has already been discussed in this thread.BlueOrange10 wrote: ↑Sun Apr 11, 2021 10:36 amIts not really 12% in retirement because of tax brackets not keeping up with inflation and other stealth tax increaseswillthrill81 wrote: ↑Sun Apr 11, 2021 10:34 amI'd rather pay 12% (or 15% if/when rates revert) on tax-deferred withdrawals and Roth conversions in retirement than 22% on Roth contributions now.BlueOrange10 wrote: ↑Sun Apr 11, 2021 10:06 amWhich is the whole point of this thread...tax-deferred balances are a pain to deal with in retirement. Better to go the roth route early and quickly.willthrill81 wrote: ↑Sun Apr 11, 2021 10:04 am It's neither easy nor cheap to make yourself 'paper poor' in order to get on Medicaid. Moving a tax-deferred balance into a trust requires realizing the income first and paying taxes accordingly.
Don't forget that the laws regarding Roth accounts are not immune to change.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
The ACA and IRMMA are effectively taxes because if you can engineer your MAGI lower, then you get a bigger subsidy or you pay less. Besides SS Taxation, those are the two that come to mind... Also, the lower your MAGI the easier to have itemize your medical expenses since they have to pass 7.5% floor. and the FAFSA can be gamed with a low MAGI.willthrill81 wrote: ↑Sun Apr 11, 2021 3:23 pm I don't know what 'stealth tax increases' you're referring to other than perhaps the taxation of SS benefits that has already been discussed in this thread.
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
That's exactly what we do.
The Sensible Steward
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
If you never convert to Roth at all, I would say that's more likely to maximize income at lowest tax rate for most people across their lifespan.bsteiner wrote: ↑Sun Apr 11, 2021 12:42 pm Each person may make his/her own assumptions as to future tax rates.
There’s no way to predict future tax rates over a long period of time. During my career the top rate has been as high as 70% and as low as 28%.
I generally use the law as it’s currently scheduled to be in effect.
To the extent you can convert at what’s likely to be a low bracket the odds are in your favor though it may turn out to have been wrong. However to the extent you don’t convert at what’s likely to be a low bracket it may turn out well but the odds are against you.
But if you somehow feel compelled to convert, or are trying to optimize taxes for your beneficiaries, then trying to manage it into the lowest tax bracket you can makes sense.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Fair enough, though the ACA is only an issue for early retirees, and IRMAA is only going to impact those making far above median incomes in retirement (i.e., $176k for MFJ in 2021).Soon2BXProgrammer wrote: ↑Sun Apr 11, 2021 3:27 pmThe ACA and IRMMA are effectively taxes because if you can engineer your MAGI lower, then you get a bigger subsidy or you pay less. Besides SS Taxation, those are the two that come to mind... Also, the lower your MAGI the easier to have itemize your medical expenses since they have to pass 7.5% floor. and the FAFSA can be gamed with a low MAGI.willthrill81 wrote: ↑Sun Apr 11, 2021 3:23 pm I don't know what 'stealth tax increases' you're referring to other than perhaps the taxation of SS benefits that has already been discussed in this thread.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
While speculation, I would expect RMDs to be included with Roth IRAs before taxation.
I think the risk is small as Roth’s represent a very small part of the investment universe.
Tony
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
RMDs are already in Roth 401ks, so not a huge leap. A means test would be a larger leap, but never say never.
I get the FI part but not the RE part of FIRE.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
True but rollover to Roth IRA avoids that (at least presently).TomatoTomahto wrote: ↑Sun Apr 11, 2021 3:43 pmRMDs are already in Roth 401ks, so not a huge leap. A means test would be a larger leap, but never say never.
Tony
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
You bet; we are counting on rolling over around 20 minutes after wife retires.abuss368 wrote: ↑Sun Apr 11, 2021 4:03 pmTrue but rollover to Roth IRA avoids that (at least presently).TomatoTomahto wrote: ↑Sun Apr 11, 2021 3:43 pmRMDs are already in Roth 401ks, so not a huge leap. A means test would be a larger leap, but never say never.
Tony
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
I was the patron at our public library to request that the library buy the book and was the first to read it.
Couple things that I was aware of that he emphasized concerning Roth conversions to a point:
1) Tax brackets for the surviving spouse are lower and narrower- convert judiciously while filing MFJ.
2) Leave your non-spousal heirs an inherited tIRA that they can manage within their present tax bracket during their 10-year window. Convert more while MFJ if their tax rates after your death are going to be higher than yours in retirement.
3) If you are charitably inclined, leave tIRA balance to take as QCD as part of your RMD until your death. Pay no taxes.
4) Maybe you will have high end-of-life medical expenses that are tax deductible. If your lucky enough not to have these expenses, the balance in your tIRA is should be compatible with #1, #2 and, #3.
5) Converting after RMDs even after 72 while filing MFJ may be advisable considering item #1 and if you have not achieved item #3.
Couple of things that I did not know:
1) RMDs of pre-1987 403(b)s contributions are not required until age 75. However, RMDs on the earnings on those contributions are required at 72 (confirmed recently by TIAA).
2) If you don't name beneficiaries, the inherited IRA go to the estate, which is not a person, and must be withdrawn in 5 years instead of 10.
Couple things that I was aware of that he emphasized concerning Roth conversions to a point:
1) Tax brackets for the surviving spouse are lower and narrower- convert judiciously while filing MFJ.
2) Leave your non-spousal heirs an inherited tIRA that they can manage within their present tax bracket during their 10-year window. Convert more while MFJ if their tax rates after your death are going to be higher than yours in retirement.
3) If you are charitably inclined, leave tIRA balance to take as QCD as part of your RMD until your death. Pay no taxes.
4) Maybe you will have high end-of-life medical expenses that are tax deductible. If your lucky enough not to have these expenses, the balance in your tIRA is should be compatible with #1, #2 and, #3.
5) Converting after RMDs even after 72 while filing MFJ may be advisable considering item #1 and if you have not achieved item #3.
Couple of things that I did not know:
1) RMDs of pre-1987 403(b)s contributions are not required until age 75. However, RMDs on the earnings on those contributions are required at 72 (confirmed recently by TIAA).
2) If you don't name beneficiaries, the inherited IRA go to the estate, which is not a person, and must be withdrawn in 5 years instead of 10.
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
It depends on the default provisions of the IRA agreement. Some default to the spouse, or if none then to the issue (descendants), or if none then to the estate. Some default to the spouse, of if none then to the estate. Some default to the estate.
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
I don't remember that complexity be discussed in Ed's book. Still, he emphasized taking control of the situation by keeping beneficiary designations up to date.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Love it!TomatoTomahto wrote: ↑Sun Apr 11, 2021 4:09 pmYou bet; we are counting on rolling over around 20 minutes after wife retires.abuss368 wrote: ↑Sun Apr 11, 2021 4:03 pmTrue but rollover to Roth IRA avoids that (at least presently).TomatoTomahto wrote: ↑Sun Apr 11, 2021 3:43 pmRMDs are already in Roth 401ks, so not a huge leap. A means test would be a larger leap, but never say never.
Tony
Tony
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Daymond John, Founder of Shark tank and CEO of clothing brand FUBU, tells how he cold called LL Cool J in NY to get him to wear FUBU and include mention of the clothing brand during promotional events, like Target commercials. Fascinating story about building a start-up with nothing but grit and creativity. Just like Phil Knight founded Nike, but without the wealthy parents.Big Dog wrote: ↑Sun Apr 11, 2021 3:11 pmnah, LL Cool J is a New Yawker, i.e., East Coast term.BernardShakey wrote: ↑Sun Apr 11, 2021 12:48 pmAh, maybe so. Love the LL Cool J reference. I'll have ask my 20-something kids about this!jason2459 wrote: ↑Sun Apr 11, 2021 12:44 pmBernardShakey wrote: ↑Sun Apr 11, 2021 12:40 pmCalifornia doesn't tax SS benefits. By the way, I keep seeing the term Cali to refer to the State of California. Generally, those of us in California simply use CA (or So Cal to refer to the sprawling LA basin). "Cali" must be a Midwest or East Coast term!
Or just a generational thing.
https://en.m.wikipedia.org/wiki/Going_B ... ol_J_song)
Anyway, I grew up in SoCal, too, so lots of kids wearing FUBU and using the term Cali 30 yrs ago.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Really? I put up with the pain, thank you. I'll also be one of the majority of people who pay less tax in retirementBlueOrange10 wrote: ↑Sun Apr 11, 2021 10:06 amWhich is the whole point of this thread...tax-deferred balances are a pain to deal with in retirement. Better to go the roth route early and quickly.willthrill81 wrote: ↑Sun Apr 11, 2021 10:04 am It's neither easy nor cheap to make yourself 'paper poor' in order to get on Medicaid. Moving a tax-deferred balance into a trust requires realizing the income first and paying taxes accordingly.
Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Big fan of FUBU and Damon (and LL), but 'Cali' is verboten for the natives.FoolStreet wrote: ↑Sun Apr 11, 2021 6:27 pmDaymond John, Founder of Shark tank and CEO of clothing brand FUBU, tells how he cold called LL Cool J in NY to get him to wear FUBU and include mention of the clothing brand during promotional events, like Target commercials. Fascinating story about building a start-up with nothing but grit and creativity. Just like Phil Knight founded Nike, but without the wealthy parents.Big Dog wrote: ↑Sun Apr 11, 2021 3:11 pmnah, LL Cool J is a New Yawker, i.e., East Coast term.BernardShakey wrote: ↑Sun Apr 11, 2021 12:48 pmAh, maybe so. Love the LL Cool J reference. I'll have ask my 20-something kids about this!jason2459 wrote: ↑Sun Apr 11, 2021 12:44 pmBernardShakey wrote: ↑Sun Apr 11, 2021 12:40 pm
California doesn't tax SS benefits. By the way, I keep seeing the term Cali to refer to the State of California. Generally, those of us in California simply use CA (or So Cal to refer to the sprawling LA basin). "Cali" must be a Midwest or East Coast term!
Or just a generational thing.
https://en.m.wikipedia.org/wiki/Going_B ... ol_J_song)
Anyway, I grew up in SoCal, too, so lots of kids wearing FUBU and using the term Cali 30 yrs ago.
https://ali.usc.edu/blog/the-slang-and- ... ifornians/“Cali” is an abbreviation of “California” that only non-Californians use. Nearly every other U.S. state calls California “Cali,” but Californians hate this. Avoid using “Cali” if you want to seem like a native Californian.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
I am on the side of Roth being under appreciated. But most of you know more than me, so I could be very wrong and would appreciate help. Let me know what you think.
My original plan was to defer, retire early at 50, and take SS at 70. This plan gave me 20 years to do Roth converts in the SD, 10%, and 12%; all good!
Then, I married another high income earner, who plans to retire at 65 (or later!?!?). There goes the time for Roth conversions. Spouse's income alone can get close to the top of MFJ 22%. We both have earned over the SS max for many years. I expect our combined SS to get close to the 22% MFJ bracket. As a result, most Trad dollars would be converted in the 24% bracket.
We currently pay at 32% or 35% MFJ bracket depending on the year. Defer at 32% and pay at 24%, still sounds good right? Well then, if you defer, you get hit by the following:
* The money not used to pay taxes gets invests in VTSAX, producing taxable dividends. There goes 0.3% or 0.4% per year (2% *15% or 2%*20%).
* IRMAA hits big in years of conversion.
* Conversions may push us up from 15% to 20% in the Cap Gains rate.
* Not finishing conversions in time results in RMDs, which may push income above the 24% bracket.
Given all this, it appears for our specific situation, Trad and Roth work out to about the same net worth when conversions are complete. Given this, I would prefer Roth because:
* Risk of early death of one spouse, leaving the survivor exposed to Single brackets
* RIsk of tax rates going up
* The need to carefully plan large Roth conversions, which could be easy to screw up
* Even if we go Roth, large employer matches are still going to tax deferred
For reference, at age 36, we have over $700k in tax deferred assets. This is a result of high incomes allowing us to max accounts for many years, very very generous employer matches, and high market returns (dumb luck). Today's balance growing for 30 years will by itself require several million in conversions.
I am thinking at this point forward, we should go with Roth for a while. But I don't have a lot of confidence in figuring this out. Do you have any thoughts or feedback for me?
Thanks a ton, saver
My original plan was to defer, retire early at 50, and take SS at 70. This plan gave me 20 years to do Roth converts in the SD, 10%, and 12%; all good!
Then, I married another high income earner, who plans to retire at 65 (or later!?!?). There goes the time for Roth conversions. Spouse's income alone can get close to the top of MFJ 22%. We both have earned over the SS max for many years. I expect our combined SS to get close to the 22% MFJ bracket. As a result, most Trad dollars would be converted in the 24% bracket.
We currently pay at 32% or 35% MFJ bracket depending on the year. Defer at 32% and pay at 24%, still sounds good right? Well then, if you defer, you get hit by the following:
* The money not used to pay taxes gets invests in VTSAX, producing taxable dividends. There goes 0.3% or 0.4% per year (2% *15% or 2%*20%).
* IRMAA hits big in years of conversion.
* Conversions may push us up from 15% to 20% in the Cap Gains rate.
* Not finishing conversions in time results in RMDs, which may push income above the 24% bracket.
Given all this, it appears for our specific situation, Trad and Roth work out to about the same net worth when conversions are complete. Given this, I would prefer Roth because:
* Risk of early death of one spouse, leaving the survivor exposed to Single brackets
* RIsk of tax rates going up
* The need to carefully plan large Roth conversions, which could be easy to screw up
* Even if we go Roth, large employer matches are still going to tax deferred
For reference, at age 36, we have over $700k in tax deferred assets. This is a result of high incomes allowing us to max accounts for many years, very very generous employer matches, and high market returns (dumb luck). Today's balance growing for 30 years will by itself require several million in conversions.
I am thinking at this point forward, we should go with Roth for a while. But I don't have a lot of confidence in figuring this out. Do you have any thoughts or feedback for me?
Thanks a ton, saver
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
I agree with your analysis.. Not the same situation as you, but as long as I continue to work, I am converting to Roth to the top of the 22% bracket. If i don't our pretax assets will mothball higher and higher into the 22% bracket if returns are poor. If returns are high, then they could escalate.saveraplenty wrote: ↑Sun Apr 11, 2021 8:30 pm I am on the side of Roth being under appreciated. But most of you know more than me, so I could be very wrong and would appreciate help. Let me Do you have any thoughts or feedback for me?
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
A perfect example why diversification early makes sense. Plans and situations often change with more (or less) success in careers, inheritances, etc.saveraplenty wrote: ↑Sun Apr 11, 2021 8:30 pm Then, I married another high income earner, who plans to retire at 65 (or later!?!?). There goes the time for Roth conversions.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
I have the opinion that the most likely tax bombs for people with significant traditional retirement assets will be the result of a spouse dying or high investment returns, One is a bad problem to have, but the other will be a good problem to have.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
While we're talking about Roth vs/ tIRA, what is the impact on the portfolio value - tax deferment of contributions and savings in a tIRA until 72 - vs paying taxes on contributions and never taxing distributions in a Roth?
Just to make it entertaining, you can use an RMD schedule and / or an assumed 4% withdrawal rate.
Just to make it entertaining, you can use an RMD schedule and / or an assumed 4% withdrawal rate.
FI is the best revenge. LBYM. Invest the rest. Stay the course. Die anyway. - PS: The cavalry isn't coming, kids. You are on your own.
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
If the tax rate at the time the contributions are made is equal to the tax rate when withdrawals are made, then the after-tax wealth of both the tax-deferred and Roth accounts will be identical.RadAudit wrote: ↑Sun Apr 11, 2021 9:25 pm While we're talking about Roth vs/ tIRA, what is the impact on the portfolio value - tax deferment of contributions and savings in a tIRA until 72 - vs paying taxes on contributions and never taxing distributions in a Roth?
Just to make it entertaining, you can use an RMD schedule and / or an assumed 4% withdrawal rate.
Since you know what your current tax rate is, the question then becomes what you believe your tax rate will be at the time you make your withdrawal. For most retirees, their tax rate in retirement will be lower. This favors tax-deferred contributions.
The Sensible Steward
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Vanguard has always recommended tax diversification within a portfolio.
Tony
Tony
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Those who are doing Mega Back Door Roth's are likely in or past 22% tax bracket on their contributions. If the idea is to get more dollars into tax advantageous investment vehicles then the current tax bracket should not be the primary determinant of preference.willthrill81 wrote: ↑Sun Apr 11, 2021 10:34 amI'd rather pay 12% (or 15% if/when rates revert) on tax-deferred withdrawals and Roth conversions in retirement than 22% on Roth contributions now.BlueOrange10 wrote: ↑Sun Apr 11, 2021 10:06 amWhich is the whole point of this thread...tax-deferred balances are a pain to deal with in retirement. Better to go the roth route early and quickly.willthrill81 wrote: ↑Sun Apr 11, 2021 10:04 am It's neither easy nor cheap to make yourself 'paper poor' in order to get on Medicaid. Moving a tax-deferred balance into a trust requires realizing the income first and paying taxes accordingly.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
Certainly if the choice is between Roth or taxable, you take Roth every time.Grt2bOutdoors wrote: ↑Sun Apr 11, 2021 10:24 pmThose who are doing Mega Back Door Roth's are likely in or past 22% tax bracket on their contributions. If the idea is to get more dollars into tax advantageous investment vehicles then the current tax bracket should not be the primary determinant of preference.willthrill81 wrote: ↑Sun Apr 11, 2021 10:34 amI'd rather pay 12% (or 15% if/when rates revert) on tax-deferred withdrawals and Roth conversions in retirement than 22% on Roth contributions now.BlueOrange10 wrote: ↑Sun Apr 11, 2021 10:06 amWhich is the whole point of this thread...tax-deferred balances are a pain to deal with in retirement. Better to go the roth route early and quickly.willthrill81 wrote: ↑Sun Apr 11, 2021 10:04 am It's neither easy nor cheap to make yourself 'paper poor' in order to get on Medicaid. Moving a tax-deferred balance into a trust requires realizing the income first and paying taxes accordingly.
The Sensible Steward
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Re: Ed Slott's new book NEW RETIREMENT SAVINGS TIME BOMB
You have to look at the current balances saved, time to actual retirement and conduct a reasonable projection of future value of the account. You can use a range of growth rates, but those with meaningful balances today ought to have the view that the account balance will only grow further especially if there is a decent amount of time left until they actually retire. And just to throw one more wrinkle in the calculation and I believe it was mentioned earlier, those with spouses will eventually become a single again at some point, then the RMD will be significant and at single tax bracket rates. But as you say, first world problems.willthrill81 wrote: ↑Sun Apr 11, 2021 10:10 pmIf the tax rate at the time the contributions are made is equal to the tax rate when withdrawals are made, then the after-tax wealth of both the tax-deferred and Roth accounts will be identical.RadAudit wrote: ↑Sun Apr 11, 2021 9:25 pm While we're talking about Roth vs/ tIRA, what is the impact on the portfolio value - tax deferment of contributions and savings in a tIRA until 72 - vs paying taxes on contributions and never taxing distributions in a Roth?
Just to make it entertaining, you can use an RMD schedule and / or an assumed 4% withdrawal rate.
Since you know what your current tax rate is, the question then becomes what you believe your tax rate will be at the time you make your withdrawal. For most retirees, their tax rate in retirement will be lower. This favors tax-deferred contributions.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions