# Deciding on Roth vs Traditional IRAs



## SeaBreeze (Nov 18, 2018)

A little information about the differences between traditional and Roth IRAs, and which ones may be best for you.  More here.  



> If you're looking to boost  your retirement savings, it's a wise idea to open an individual  retirement account, commonly known as an IRA. Though similar to 401(k) plans found in the workplace, an IRA can give workers more investment options and greater control over how their assets are managed.
> 
> In 2019, you will be able to contribute up to $6,000 to an IRA  or, if you're age 50 or older, up to $7,000. You can also choose  between two IRA options: a traditional account or a Roth account.
> 
> ...


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## mathjak107 (Nov 19, 2018)

there is a lot of issues in this article that are either wrong or miss the boat unfortunately.

  there is to much emphasis here on whether you will be in a lower or higher tax bracket compared to your present bracket . final bracket is the worst paramater you can judge by .

this is a poor way to judge .

our average tax brackets span decades . they ramp up over decades in most normal jobs .  comparing just the final years to retirement is wrong .  your overall tax bracket spanning your career will likely be lower than your final years working . it certainly is that way for most of us so comparing your highest year is not accurate at all . doctors ,awyers , other highly paid professions may be different since the early years may already be in the upper brackets .

the truth is roths can be excellent to start early on because odds are our average tax bracket will be lower than the retirement bracket since our incomes tend to fall out within 20% or so of our final years , and our long term averages are generally lower . .

t.rowe did an in depth study at this and found even if tax rates did not change , a roth started early on could have as much as 20% more cash flow because that average long term bracket can be so much lower than your final brackets 30-40 years later  which is the one wrongly looked at ..

your career average will tend to be lower so using a roth  can  produce better results even if tax rates don't change in retirement .

plus so much is linked to retirement income that is taxable .

getting ss taxed , what you pay for medicare , aca subsidies , rmds and the fact that anything you take out because of rmd's and reinvested will be taxed on gains  after 70-1/2 while the roth will not .

you may be able to make use of the zero capital gains brackets as well . don't forget for a spouse taking rmd's who lost a partner ,they are filing single now  with those rmds , where there are no rmd's on a roth . this is a biggie overlooked by who ever wrote that article  .

so in most respects this article missed the boat on really being informative as to the real benefits of roths . they focus to much on your final tax year vs retirement  and miss all the other solid reasons for doing roths as early as you can  or for doing conversions where it makes sense .


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## StarSong (Nov 19, 2018)

I found the article helpful, SeaBreeze.  Yes, there is more to know than what is described there, but it's a great starting off point.


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## mathjak107 (Nov 20, 2018)

the article could be mis-leading though because the real deal is not going to be about  comparing your final  years tax bracket to a retirement one . the big focus is all those things linked to your retirement income .

getting ss taxed  as an example when a roth would have prevented that is a  biggie .   the effects of rmd's on a widow can be devastating along with the loss of an ss check when a spouse dies .

medicare premium increases can be brutal as you exceed the income thresholds .

as far as my opinion , the least of the things you should be looking at is a final years tax bracket compared to retirement .

i consider myself fairly knowledgeable in planning but i dropped the ball tax wise because i believed all this bull about comparing your tax brackets before and after .

by the time i was ready to retire it was to late to do a thing and i could have had a aca subsidy from 62-65 which i blew  by not having roths .

there were years i could have taken advantage of selling equities in the 15% bracket but again , i couldn't , roths would have allowed it .

so it is hard to plan early on when the information that is out there focus's on the wrong things.

most financial planners suck at the 2nd half of the game .   they basically followed the boomer money so they were well versed in the accumulation side of things . but now that boomers are retiring and are in the decumulation side of things the old school advice and rules are no longer accurate .  accumulation side planners are a dime a dozen . 

good decumulation side planners are quite rare .

much of the advice you read or get is old school and out dated today .


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## StarSong (Nov 20, 2018)

We have all learned through experience that hindsight is 20/20, and it's almost always true when it comes to financial decisions.  MJ, Although you appear to be saying that you're beyond the window where IRA to Roth conversion makes financial sense, that's not true for everyone in our age group.  In my case, the conversion ship may have set sail sail, but it hasn't yet reached open waters.  There is still time to catch up with it, though it will not be as easy or painless as if I had done this while it was still in the harbor.      

I think this article intends to open the conversation with broad information rather than expecting to serve as a be-all and end-all.  I've been toying with converting some IRAs to Roths for reasons outlined both in the article and in your posts above.  

Most financial planners have competing agendas, they work for their own good and try to serve their clients at the same time.  Some receive commissions on what they're selling or recommending.  Some FPs steer clients to investment vehicles because they have friends working for those companies.  Some who charge hourly rates orchestrate their services so that clients will need to return periodically for review and updates, thus ensuring a regular revenue stream.    

Caveat emptor.    

On the other hand, isn't that true of nearly all who work in the private sector?  I certainly championed my own products over the competition's.  When people expressed interest in something that gave us a higher profit margin it would have been against my self-interest to dissuade them.  We've all gotta earn a living.  Very few of us spend decades in the workforce because it's a beloved hobby.


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## mathjak107 (Nov 20, 2018)

StarSong said:


> We have all learned through experience that hindsight is 20/20, and it's almost always true when it comes to financial decisions.  MJ, Although you appear to be saying that you're beyond the window where IRA to Roth conversion makes financial sense, that's not true for everyone in our age group.  In my case, the conversion ship may have set sail sail, but it hasn't yet reached open waters.  There is still time to catch up with it, though it will not be as easy or painless as if I had done this while it was still in the harbor.
> 
> I think this article intends to open the conversation with broad information rather than expecting to serve as a be-all and end-all.  I've been toying with converting some IRAs to Roths for reasons outlined both in the article and in your posts above.
> 
> ...



if you can fill the bracket below yours with a conversion it always makes sense . but that again loses quite a bit of effectiveness compared to having done it right years ago .

again , it is the average tax rate we have spanning decades that needs to be the comparison not just the final years to really be effective . 

had i planned better using roths  , over funding my life policies and just using the standard deductions and exemptions which can give a couple over 40k  at about a 4% tax from your ira's , i could have had a 100k plus income in retirement  from 62 to 65 and still had an aca subsidy . but i learned to late and not enough articles addressed all the other implications of roths vs traditional . they all handed you the same spiel about comparing your final years income with retirement .

i find the best way to learn is learn who the smart people are , especially on some of the forums out there and learn from them . 90% of everything i know came from  both the work of retirement researcher  michael kitces  , and some of the really smart people over on the early retirement and financial independence forum . they are the creators of firecalc .

most articles written by these typical writers are just click bait  and loaded with either mis-information or the wrong information .

my advice for anyone who wants to learn is read the works of kitces , dr pfau , blanchette , milevsky , to name but a few and avoid the click bait stuff .


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## SeaBreeze (Nov 20, 2018)

My husband has always done our taxes and made financial decisions for us and his parents before they passed on.  We've been doing some Roth conversions on our IRAs so that when we want to withdraw the money in the future, we won't have to worry about paying taxes on it.  Thank you both for your input, I'm still just learning about these things.


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## mathjak107 (Dec 14, 2018)

SeaBreeze said:


> My husband has always done our taxes and made financial decisions for us and his parents before they passed on.  We've been doing some Roth conversions on our IRAs so that when we want to withdraw the money in the future, we won't have to worry about paying taxes on it.  Thank you both for your input, I'm still just learning about these things.



 i like roths for all the perks they have but you do need to be sure of your plan before arbitrarily  doing conversions .

a lot depends on your total income picture in this sense .

the tax gods give us a gift .  if you will be delaying social security you can take up to 24k a year out of your ira's TAX FREE .  that is just using the standard deduction . you can take up to 44k out at less than 5% tax .

you can pull out hundreds of thousands of dollars and pay no or low taxes on your ira money in this case .  it would make little sense to pay much higher tax rates by converting money that could be had tax free anyway .

so it is important to have a handle on your plan before just converting .


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## StarSong (Dec 14, 2018)

mathjak107 said:


> i like roths for all the perks they have but you do need to be sure of your plan before arbitrarily  doing conversions .
> 
> a lot depends on your total income picture in this sense .
> 
> ...



Say what????  You can take $24K out of an IRA tax free and 44K at less than 5% tax?  Please provide some links for this.  I'm very interested.


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## mathjak107 (Dec 14, 2018)

StarSong said:


> Say what????  You can take $24K out of an IRA tax free and 44K at less than 5% tax?  Please provide some links for this.  I'm very interested.




ha ha ha ,,  just the standard deduction wipes out 24k in income for a  couple . what else you want to know . if you took out 44k you pay about 4.50% tax after the standard deduction . remember , i said if you are delaying ss . so the standard deduction wipes out the income you took . there is no magic here . in fact a 65 year old couple can take more since they get an additional bonus tax wise. a 24k ira withdrawal minus  a 24k standard deduction = zero tax .


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## StarSong (Dec 14, 2018)

Ah... I see where you're going with this.  Thought I'd missed something in the fine print.


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## mathjak107 (Dec 14, 2018)

it is just a word to the wise , not to assume conversions are always the best way . you can shoot yourself in the foot if you can just get the money out by delaying ss and pay no taxes on it , wrote it off at higher income levels and  are getting a boost in social security delaying at the same time . it my even allow you to utilize the zero capital gain brackets in a taxable account .

had i been smarter and more knowledgeable earlier on i could have had a  tax free 100k plus income in retirement and got an aca subsidy all while growing ss . but who knew ... i was doing well as an investor . who knew there was so much more to know


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## StarSong (Dec 14, 2018)

I have reread your first sentence six times but can't make heads nor tails of what you're saying.  Would you rephrase?


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## mathjak107 (Dec 14, 2018)

basically i am saying that if someone will be delaying taking ss but retiring at 62 then they may have potentially  many ways of getting no to low tax money out without doing expensive roth conversions .

if you can stay  below certain thresholds not so much in income but taxable income you can do pretty well  tax wise


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## StarSong (Dec 14, 2018)

Gotcha.  Thanks for the simplified explanation.


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## OneEyedDiva (Dec 20, 2018)

mathjak107 said:


> there is a lot of issues in this article that are either wrong or miss the boat unfortunately.
> 
> there is to much emphasis here on whether you will be in a lower or higher tax bracket compared to your present bracket . final bracket is the worst paramater you can judge by .
> 
> ...




I agree with Mathjak on this. I started out investing in traditional IRAs and converted most of that into Roths. I like the idea of not having my dividends and capital gains taxed regardless of what bracket i'm in (which is actually lower now).  I also don't like the government telling me when I have to take distributions, especially since I really don't need to take them.  What I have learned to do is instead of donating to St. Jude during the year as a Partner In Hope, my fund company makes a direct donation from my traditional IRA RMD which makes the distribution tax free. Also seniors in lower tax brackets need every dollar they can get. Why "give" the government that money?


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