patrick.net

HeadSet says

RWSGFY says

You pay taxes either way. It's a wash.

??? If I put 6k per year in a Roth IRA I will be able to pull the accumulated amount out tax free. True, I was taxed on the $6k when it was earned, but that is still the case whether I put the money in a Roth or spent it on Franklin Mint collectable plates.

It's been debated to death and calculated 7 ways to Sunday. All other things being equal it's a wash tax-wise.

RWSGFY says

It's been debated to death and calculated 7 ways to Sunday. All other things being equal it's a wash tax-wise.

True dat. It's opportunity cost vs. deferred gratification. I.e., the opportunity cost of saving less for retirement via a Roth, vs. regular IRA.

To those saying that the taxes will be much higher in 20 years, what's to stop the gubment from changing the tax laws for retirement to fuck us all? Hell, Obama nuked the middle class offshore tax shelters that had been in place for 50 years.

RWSGFY says

It's been debated to death and calculated 7 ways to Sunday. All other things being equal it's a wash tax-wise.

Let's think that one through. Real life example - 1666 shares of Apple bought at $3 per share circa 2007 and put into a Roth. That $5000 used to purchase was taxed when it was earned, about $1250 to the IRS. Now those shares are worth over $426,000 (plus accumulated dividends) which can be withdrawn tax free when over 59.5. Had those shares been bought and put into a Traditional IRA or just kept in a regular account, one would be paying about $107,000 in taxes if one made a total withdrawal. True, one could have done a Trad IRA and invested the $1250 tax savings to buy another 416 shares which would be additional $104,000 today, but that amount would be fully taxable ($25,000 in tax) as the IRA in 2009 had a $5000 contribution limit.

In 2007, a 20-year Treasury was about 5%. So, if one put $5,000 into a 20-year fixed 5% vehicle back then it would be worth about $16,000 at maturity. Without a Roth IRA, withdrawing that would generate $4,000 in taxes. True, taking the $1250 tax savings using a Trad IRA and investing at that same 5% would yield another $4,000, but since the contribution limit is $5,000, that extra $4,000 would be taxed on withdrawal ($1,000 to IRS).

One could say that the differences between using a Trad IRA and a Roth IRA are a wash tax wise, but only if one cannot afford the full deduction and uses the tax savings to more fully fund the IRA. Or if the IRA had no contribution limits.

HeadSet says

One could say that the differences between using a Trad IRA and a Roth IRA are a wash tax wise, but only if one cannot afford the full deduction and uses the tax savings to more fully fund the IRA. Or if the IRA had no contribution limits.

The govt is going to tax it anyway.

Let's see. Roth limit in 2000 is $2000.

$2000 after 30% tax is ~$2857.14 in pre-tax money.

So we choose between investing $2K into Roth or $2857.14 into 401k w/o affecting the take-home pay.

$2000 invested into S&P in 2000 is ~$14251.80 now.

$2857.14 invested in S&P in 2000 is ~$20,345.91 pre-tax. Or ~$14.242.14 after-tax.

Basically a wash (0.07% difference if we are to be nitpicky). You get to enjoy the same amount of $$ in retirement, everything else being equal.

Roths are a wash and not worth the trouble. They would only work if future taxes are grossly exorbitant compared with today's taxes and you fucking live that long.

I ran Monte Carlo scenarios, and if you live to be over 85 years, then maybe a Roth will pay off nicely at the point you are in terminal dodder. You have to live long enough for the foreshortened funds to catch up, then enjoy compounding. Otherwise, they are just re-arranging the deck chairs of the money.

You really think they would give you something like that without gaming it? Contribute when you are in a lower tax bracket, then harvest when you are in a 'higher' tax bracket later? It's an actuarial game of chance. You can't take it with you.

It's a 'pay us taxes now and we will gladly give you a tax advantage next Tuesday'.

Well at least Headset has a clue.

In a word - pickleball.

My goal is to retire at 59 and a half. Most of my money is in Roth 401ks so no taxes on the back end. That's the plan anyway.

RWSGFY says

Let's see. Roth limit in 2000 is $2000.

$2000 after 30% tax is ~$2857.14 in pre-tax money.

So we choose between investing $2K into Roth or $2857.14 into 401k w/o affecting the take-home pay.

To be straight you should compare using $2k for both the Roth and the 401k calculation. Adding in the employer contribution is another issue. Besides, anyone who is in the 30% marginal tax bracket is rich enough to max out both the IRA and the 401k.

Think of all the Leftist nutcase childless catladies there will be in 30 years.

WHO is going to pay for their Ambien?

DemoralizerOfPanicans says

Think of all the Leftist nutcase childless catladies there will be in 30 years.

I'm surrounded by them in Santa Cruz, and the lesbo varietals, too. There are a lot more of these surviving than their male contemporaries, the grizzled gray bearded long haired old hippies from the hippie factories. My friend has lesbian neighbors on both sides, across the street, and just around the corner. Only a few of them are rancid, many are pretty nice all considered. The old lady exegetist behind us who looks like an ancient lesbo (don't know if she is or isn't, converted to becoming a buddhist priestess recently, nearly bald and wears a baseball cap) has a lesbo daughter and her partner who live down the street.

They seem to become less compatible with human beings and especially men after they go through the menopause crazies and settle into their longer term crazies (sometimes milder crazies, sometimes worse). They still retain their notions that men are servants, though, and the few pitiful men who seek their approval are leached upon mercilessly.

There is no such thing as a Mega Backdoor 401K, therefore it's not a wash. I'm approaching 5 years at my current job this month and have been maxing that out every year. In that time I've added at least 200K to it. I've maxed that, my 401K (for the match), my ESPP and my HSI. I've basically lived off of savings since I started working here.

I increased it by 170K this past year investing in bitcorn. It didn't matter if I originally had 300K or 600K or other in my 401K I wasn't going to invest that much more into bitcorn, just because it had theoretically appreciated more over the years being a 401K. I used a safe (to me) net-worth percentage.

I then went and spent a ton of that bit coin earnings on a new truck using one of my non-retirement accounts but $ is fungible.

In retirement I plan (life is what happens when you are making other plans lol) to be making way more than I do now AND I want to get my grubby fingers on the Social Security I paid in even if it turns out I don't need it - Roth doesn't count against that.

Also:
DemoralizerOfPanicans says

Think of all the Leftist nutcase childless catladies there will be in 30 years.

WHO is going to pay for their Ambien?

Maga_Chaos_Monkey says

There is no such thing as a Mega Backdoor 401K, therefore it's not a wash.

All this "mega ass door" talk is basically saying "I prefer to pay taxes now vs later". Cool as long as we're open-eyed about the whole thing.

Ceffer says

There are a lot more of these surviving than their male contemporaries, the grizzled gray bearded long haired old hippies from the hippie factories.

Quote of the Day:

Metalheads are good guys who try to look like bad guys

Hippies are bad guys who try to look like harmless nice guys

Eric Holder says

All this "mega ass door" talk is basically saying "I prefer to pay taxes now vs later". Cool as long as we're open-eyed about the whole thing.

But it's not. I max out my 401k too, but after that I have a large chunk of $ I need to do something with.

I could put it in a regular brokerage but there is no tax benefit at all doing that.

It just so happens that there is a huge tax shelter that so far hasn't been canceled, where you can put well over 50K per year into a Roth.

Also being able to put significantly more into a mega sort of negates the point of: 401k grows more quickly.

Not everyone has access to the mega though. If not and you have an employer, then bug the shit out of them to allow it.

If there were no back door or mega backdoor I would concede that it's maybe a wash.

But maybe not if it counts against your social security.

HSA after a certain age you don't even need to use it for healthcare, you can use it for whatever you want, no taxes to be paid before or after. I make healthcare payments where I specifically do not use my HSA so it can accumulate and grow more quickly. I save the receipts though just in case I want to pull some $ out of that account for something else, I would just be repaying for X,Y or Z of the past.

Annuities I really don't know much about but from what I've heard if the insurance company behind it goes bankrupt you lose it all. I like the concept of it being anon though. There is a father / daughter on the AM radio here in San Antonio that have a weekend show where they try to sell that stuff.

You can fund an Roth even if you don't have 'extra' money. I was suffocating from debt in my 20s and I still started a Roth and maxed it out every year, until my income went up and I was 'phased' out. Then I lost a decade or so until learned of the back door options.

I definitely appreciate the tips from the guys on here further down the retirement path. Maybe @rin should chip in and tell us we're all wrong. I hope that guy is still having fun with that long term chick he hooked up with. Probably so if he has no time to comment much here these days, even though he's already early-retired.

Goal of mine: $1M in a Roth before I retire. I still have a long way to go but I did cross over 500K this year finally. I want to have other investments as well but given no-tax I plan to go hard with the Roth.

We have Roths because we had extra after tax money anyway. I could never figure out how to get past the crappy rules, so the contributions don't amount to much. There are some crafty types who found ways to get more money into Roths. There are those who make it a mission just for the 'satisfaction' of not paying the taxes (although they did, just prepaid).

My wife had a thing for a while where she could contribute 50 percent of her earnings to a 401K, so we did that along with mine.

One thing you could try is to over contribute on the idea that you won't get audited. After a few years, they don't seem to bother any more. Maybe the computers are better now, so it is always a risk reward thing.

Maga_Chaos_Monkey says

I definitely appreciate the tips from the guys on here further down the retirement path.

That's wisdom right there. Also I agree with your strategy to max the ROTH. I've got too much in my deferred and not enough in my ROTH. I do consider my HSA a ROTH though - as someone mentioned above there's really no way for the government to keep track of what I'm spending HSA money on and I've got decades of medical costs to offset any one given year.

These are the things that I had no idea about at 55 but at 60 consume an inordinate amount of my thinking :

ACA PTC
IRRMA
RMD's
NIIT.

I'm sure there's going to be more surprises as I age. It's all bullshit too, because I'm sure that the healthcare system will extract every nickel we have in the last two or three years of our lives anyway.

Ceffer says

There are those who make it a mission just for the 'satisfaction' of not paying the taxes (although they did, just prepaid).

Putting money into a Roth does not create any additional taxes. You were taxed on that money when it was earned, regardless of whether you used that money to buy a Corvette or invest.

stfu says

ACA PTC
IRRMA
RMD's <------ If that's required minimum distributions then I've heard of that one, the others I have not.
NIIT.

Looks like I've got some 'fun' reading to do after work....

I would expect IRMMA to affect everyone here.

What is in my variable annuity are called "sub accounts" which are identical to mutual funds; one of mine is managed by Primecap, which also is managing a fund at Vanguard called Primecap. Neither mutual funds, nor sub accounts can go "bankrupt."

What's bankrupt is the US government, not insurance companies; insurance companies own a lot of the USA debt which is used to pay people who buy an immediate fixed annuity.

HSA accounts cannot be spent tax free on anything and everything; but you can spend them eventually either way.

There is no RMD for a variable annuity, nor Roth, nor an HSA. There is also no RMD for a mutual fund in a regular account.

zzyzzx says

I would expect IRMMA to affect everyone here.

Yep, eventually, and likely some Roth max income limitations as well.

clambo says

HSA accounts cannot be spent tax free on anything and everything; but you can spend them eventually either way.

yeah, you're right. At 65 the penalty for non-medical expenses goes away but if you do that you're on the hook for income taxes

Ceffer says

Apparently this AI is unaware of the backdoor and mega backdoor options