It's been awhile but I read an article stating for the majority of people it's essentially a wash. The returns in the Roth being tax free generally offset the higher tax rate.

Either way, I do Roth on the 8% I contribute. My company matches 8%, which is obviously traditional.

Having some in both scenarios is enough reason for me to do Roth.

Good mix of both can allow for some pretty cool tax-saving maneuvers in retirement.

gggmann said:

---

infinity ag said:

---

Quote:

---

Who qualifies for Roth IRA?


If you file taxes as a single person, your Modified Adjusted Gross Income (MAGI) must be under $144,000 for tax year 2022 and $153,000 for tax year 2023 to contribute to a Roth IRA, and if you're married and filing jointly, your MAGI must be under $214,000 for tax year 2022 and $228,000 for tax year 2023.

---

So it looks like I cannot create a Roth IRA account. What are my options? I have an IRA though. Any smart things I can do at this point?

---

You contribute after tax to a regular IRA and immediately convert to Roth. It's called a backdoor Roth, just google it. If you have an IRA already w/ pre-tax contributions then you have to follow the pro rata rule.

---

It's not that easy if he already has another IRA. Google pro rata rules.

I'm surprised no one has mentioned mega backdoor Roth (which is different from just a backdoor Roth). IMO, if you want to diversify your pre- and post-tax savings, this is the way to do it.

This allows you to save up to an additional $43,500 after tax, on top of the $22,500 ($30k, if you're 50 or older).

The catch is, your employer's retirement plan has to offer/allow in-plan distributions. I started doing this just this year.

I max out my traditional pre-tax 401k to get the tax break. Then I make after-tax contributions to that same 401k that get a rolled over to a Roth. I'm nowhere near the $43,500 that is allowed (more like $8k for the year), but I can increase it at any time.

My 401k is with Fidelity, and I just called them and told them I wanted my after-tax contributions to go to a mega backdoor Roth. They knew what to do and set it up all behind the scenes. They will also keep track of the paperwork so that taxes are correct when I finally start taking distributions. The only "catch" is the contributions go to the same fund as my traditional 401k. I can't direct them to other investments.

I had a "regular" backdoor Roth (with the $6500 contribution) for many years. But I rolled over an old 403b to an IRA and can't do that anymore, so I do the mega backdoor instead (which I think is better anyway). Link below that gives a good explanation of it all.

https://www.nerdwallet.com/article/investing/mega-backdoor-roths-work

bmks270 said:

---

Quote:

---

Let's use the standard 4% withdrawal rate.
In todays tax brackets, here's what your traditional account balance would have to be for a 4 % withdrawal to put you into the marginal tax brackets for single / married.

10%: 0 / 0
12%: 275k / 500k
22%: 1.1M / 2.2M
24%: 2.3M / 4.6M
32%: 4.5M / 9.0M

And so on…

A $110,000 income puts a single filer into the 24% bracket.

---

To expand further on this, most people able to save 2+ million as a single person are going to be in the 24% bracket or higher. If you're in the 24% bracket, then until you have balance predicted to grow to 2.3M the traditional seems to be the winner.

Also consider traditional lowers your AGI which has a lot of tax credits tied to it and so on. And can keep you out of the next higher tax bracket.

For example, for a single person if they take the standard deduction and put away max traditional 401k, they can have a gross income of up to 129k but their AGI will be 95k so they'll stay in the 22% marginal tax bracket. If they did a Roth instead they'd be paying 24% tax on all of their contributions, which wouldn't make sense for them to do unless they've already saved enough that their withdrawals will put them into that same tax bracket which would require them to have a future balance of 2.3M for a 4% withdrawal rate.

If you start saving earlier in life the amount you need to save to reach the above account balances is far lower.

For someone age 30, assuming an 7% inflation adjusted growth in an index for the next 30 years until age 60, they'd need only $310,000 in their traditional 401k to reach 2.3M in todays dollars at age 60. That's actually quite a lot to have saved by age 30, if we assume someone began their career at age 22. With the contribution limits, it's actually impossible if the rate of return is only 7%. Even maxing it every year from age 22 to 30 would only get a person to 230k with a 7% return rate.

For the large majority of people who have income to spare for their 401k, they'll be in the 24% bracket and above. And they'll take a number of years, a decade or more to seed their traditional account to the point where their withdrawals will put them into the same marginal tax bracket. So traditional having a lower taxes at withdrawal because of the lower brackets is absolutely valid and makes traditional take priority over roth. And the higher your income, the more it applies.

I think once in the 24% marginal tax bracket it's better to be prioritizing traditional instead of Roth at least until you'll have inflation adjusted withdrawal that put you into the same marginal tax rate, which frankly still requires a lot of savings.

And I'd argue if you accomplished that then you've sort of already won the savings game and have saved enough to maintain your standard of living. You'd arguably be better off to stop using tax advantaged retirement savings accounts at this point and just begin diverting that savings into a taxable account that will leave a lot more to your heirs. And as a bonus you'll have access to the money to retire early without penalties and the growth will be taxed at lower long term capital gains tax rates instead of your marginal tax rate, which is actually quite tax efficient. This philosophy makes roth irrelevant.

---

I appreciate you taking the time to write all of this out.

I've been doing this for about the last 6 years. Contribute as much as allowed pre-tax and fill in the after-tax bucket until I've reached the max allowable level 3 contributions. I roll that over into a jumbo Roth contribution and incur a small capital gain for tax purposes. It amounts to about $20,000/year to the Roth.

Imagine yourself at 65 years old with $3-4million in TAX FREE dollars to use as you wish.

Then imagine yourself with $3.5-4million in TAXABLE dollars that also affect your social security and medicare.


Then also imagine whatever amount you don't use for yourself either being 100% taxable to your beneficiaries within 10 years of your death versus completely tax free.

Here's the bottom line..... you can either throw everything possible into Roth accounts during your working years in exchange for a mostly tax and stress free retirement, or you can play the game of "will my tax rate be lower now or when I'm 65"

Too much emphasis in this argument is placed on the quantitative stuff. When you're in the middle of your retirement I promise you that your first thought during tax time won't be..."man, i'm glad I deferred all of those taxes from 30 years ago, I really stuck it to the man!"

It will almost certainly be.."I wish someone would have told me 30 years ago to put more money into Roth".

Baby Billy said:

---

Imagine yourself at 65 years old with $3-4million in TAX FREE dollars to use as you wish.

Then imagine yourself with $3.5-4million in TAXABLE dollars that also affect your social security and medicare.


Then also imagine whatever amount you don't use for yourself either being 100% taxable to your beneficiaries within 10 years of your death versus completely tax free.

---

THIS.

I genuinely don't understand how there's such a big debate around Roth v. Traditional. I understand everybody's situation is different; but I just have a hard time seeing how Roth isn't the CLEAR winner for most folks.

• Better for long-term horizons (8+ years in my opinion) (regardless of income brackets).
• Better for legacy planning / estate planning (10 years for heirs to draw it down, tax-free)
• No RMD's.
• No worrying about your retirement income's impact on tax brackets, Medicare premiums, NIT tax limits, Social Security impact, etc. in retirement.
• Massive flexibility to take out a huge lump-sum in years you want/need to without worrying about any of the above.

Money doubles every 8 years, in theory. If your horizon is longer than 8 years, you are most likely going to be better off with a Roth. You could probably make a decent argument 8 years prior to retirement that you should start going traditional; as you are probably making your highest income levels... and at that point if you've been doing Roth, most of your income will be tax-free in retirement, so building a small taxable amount would likely keep you in very low income brackets when you pulled it out of Traditional.

The only way I see Traditional keeping up with Roth, on a long-term horizon is if you take the money saved today, and invest it. Then it's more or less a breakeven either way. But most folks aren't likely doing that.

Additionally, your company match is always in Traditional. So even if you go all-in with Roth, you're going to have a decent amount of Traditional money available, most likely. Which provides some diversification.

Baby Billy said:

---

Here's the bottom line..... you can either throw everything possible into Roth accounts during your working years in exchange for a mostly tax and stress free retirement, or you can play the game of "will my tax rate be lower now or when I'm 65"

Too much emphasis in this argument is placed on the quantitative stuff. When you're in the middle of your retirement I promise you that your first thought during tax time won't be..."man, i'm glad I deferred all of those taxes from 30 years ago, I really stuck it to the man!"

It will almost certainly be.."I wish someone would have told me 30 years ago to put more money into Roth".

---

My 64 year old dad is going though this now. He is frantically trying to figure out how much to convert money from Traditional IRA to Roth... without busting his Medicare Premiums (which are very difficult to figure out what the brackets will be), pushing him into NIT taxation (extra 3.8%), impacting his Social Security, and pushing him into a higher marginal tax bracket.

He spent countless days/hours stressing about how much to move during the final weeks of December. My mom was irritated he kept spending so much time in Excel, talking about it with me on FaceTime, etc.

And he keeps saying, exactly that "I wish I would have been converting this to Roth a decade or more ago."