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If you make that much, see if your company offers an "after-tax" 401k. The contribution limit is something like 50k after tax, and you can immediately roll whatever you contribute into a roth.
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Apr 4, 2017 19:54
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It's really pretty lovely that the contribution amount is so much lower outside of an employer 401k. Is there any good reason that 401k's allow $18k but a personal IRA is only $5k?
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Apr 4, 2017 20:12
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paternity suitor posted:Is there any good reason that 401k's allow $18k but a personal IRA is only $5k? And any sort of tax reform is a third rail I guess, because otherwise it shouldn't be too hard to just say "whatever the vehicle is, you get a total of $x tax advantaged space a year." CopperHound fucked around with this message at 20:34 on Apr 4, 2017 |
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Apr 4, 2017 20:17
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I don't even see how you can retire on $5k a year poe meater I would start a taxable account and invest in the same poo poo you would invest in with a 401k.
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Apr 4, 2017 20:29
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$5,500 a year compounded at ~7% comes out to north of 500k in 30 years. It's not enough to retire on but with social security it can be enough for a comfortable retirement. Not of the jet-setting variety or retiring early, of course, you need a 401k and/or taxable investments for that.
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Apr 4, 2017 20:38
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Is there any reason to ever look at a myRA? It looks like it's just a 100% bond portfolio with a $15,000 contribution cap.
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Apr 4, 2017 20:43
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Neon Belly posted:Is there any reason to ever look at a myRA? It looks like it's just a 100% bond portfolio with a $15,000 contribution cap. It's definitely the worst option you can pick aside from maybe stock gambling in your IRA.
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Apr 4, 2017 20:52
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Nail Rat posted:Most people who make six figures don't make nearly as much as you do. I would wager that the majority of people making 6 figures are eligible, especially because 401ks reduce your MAGI. When you take into account other deductions, it's entirely possible an individual making slightly north of 140k can contribute the full amount, if they're maxing their traditional 401k. I don't even make 6 figures. I made high five figures for a couple of years at a lobbying firm in D.C. and took a big pay cut to move to a cheaper area fairly recently. I'm just saying that is an example. If you make less than 6 figures you are eligible for a roth 100% of the time. If you make more than 6 figures, then there is a chance you aren't and would go with a traditional.
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Apr 4, 2017 21:17
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Leon Trotsky 2012 posted:I don't even make 6 figures. I made high five figures for a couple of years at a lobbying firm in D.C. and took a big pay cut to move to a cheaper area fairly recently. Ah, my bad, thought you were one of the resident 200k+ers. And while there's a chance, the chance that you don't qualify for a Roth as a 6-figure earner is much less than the chance that you can't deduct a traditional. Since there is a 45k disparity in the AGI requirement.
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Apr 4, 2017 21:20
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Neon Belly posted:Is there any reason to ever look at a myRA? It looks like it's just a 100% bond portfolio with a $15,000 contribution cap. It actually has a $5,500 contribution cap, and a $15,000 capacity limit. It uses the same contribution limit (the actual limit, not just the same number) as an IRA, and once your balance hits $15,000 it must be rolled over to an IRA They're terrible.
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Apr 4, 2017 21:54
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Nail Rat posted:Ah, my bad, thought you were one of the resident 200k+ers. We prefer the term "whales" thanks. Does anyone have any strong feelings about Yellen's indicated willingness to let inflation drift up above 2%? I don't think it'll go to 4% like that IMF dude wants, but gently caress pushing for higher inflation just so central banks have "more tools to use in a downturn." QE wasn't that bad, that showed some creativity. So what, go push on a string. Demographics say we're not getting 7% anyway, unless we can get some goddamn robots cooking.
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Apr 4, 2017 22:18
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GoGoGadgetChris posted:It actually has a $5,500 contribution cap, and a $15,000 capacity limit. It uses the same contribution limit (the actual limit, not just the same number) as an IRA, and once your balance hits $15,000 it must be rolled over to an IRA That people word it this way shows how effective the previous administration's messaging was. MyRA isn't like an IRA, it IS one. It's just the govt acting as an IRA provider with some special funds that only Uncle Sam offers.
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Apr 4, 2017 22:43
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Steampunk Hitler posted:Basically a dollar in a Roth is more "valuable" than a dollar in Traditional because the taxes have already been paid on the Roth (using a simplified example of 15% taxes, $1 in roth is worth $1.15 in traditional). Wouldn't your tax liability just scale? It seems like you're looking at ... Traditional: Contribution * Return * Tax liability Roth: Contribution * Tax Liability * Return XYZ = XZY It's my understanding that the benefit is eschewing capital gains and influence over what tax bracket that income and its gains will fall under.
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Apr 5, 2017 03:43
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Z1 != Z2 Most people are in a lower tax bracket after retirement. But I agree that in general the "a dollar is more valuable in a Roth" argument is overblown. One costs more to put in, the other costs more to take out.
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Apr 5, 2017 04:35
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Accretionist posted:Traditional: Steampunk Hitler posted:means that you get a higher effective limit contribution - taxes = 5500 or contribution = 5500 - taxes CopperHound fucked around with this message at 06:31 on Apr 5, 2017 |
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Apr 5, 2017 06:27
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Accretionist posted:Wouldn't your tax liability just scale? Assuming you're maxing out the IRA, the Roth contribution will be higher in your example. The math is the same, but the inputs are different.
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Apr 5, 2017 06:32
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Accretionist fucked around with this message at 07:49 on Apr 5, 2017 |
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Apr 5, 2017 06:49
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Accretionist posted:Wouldn't your tax liability just scale? Well let's take a look at the math, we can ignore the returns part because it doesn't change anything, and let's just look at it in terms of pure value of the dollar you've put into the IRA. Traditional: You put in $5500 of pre tax dollars, for simplicity's sake we'll say you have a flat 15% tax on this. Thus if you were to withdraw this entire amount of money you would pay your 15% tax and get $4675. Roth: You put in $5500 of post tax dollars, since this has already been taxed when you withdraw it you get $5500. To put another way, since the limit is $5500 no matter what, paying taxes *before* you apply the cap, means you effectively get to put in $6470.5882 of pre tax dollars. If you only put $4675 into your Roth IRA then yes, it would come out to exactly the same (in the simplistic 15% flat tax scenario)
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Apr 5, 2017 12:02
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Steampunk Hitler posted:Well let's take a look at the math, we can ignore the returns part because it doesn't change anything, and let's just look at it in terms of pure value of the dollar you've put into the IRA. Just a further bit of clarification, the tax % you'd use here is the the % you'd be paying in retirement not the tax you're paying today. If you're paying 30% today but would be paying 15% in retirement (to against use simple numbers) you've essentially paid $7857.1429 to put in $6470.5882 worth of contributions into your IRA. Unless you're paying more in taxes in retirement, a traditional is better if you're not able to effectively contribute more to the Roth by paying a premium for the privilege. So to use the 30% today, 15% in retirement numbers, if you're only able to contribute 3500 to your Roth or $5000 to your Traditional IRA (for the same effective contribution in terms of how much of your paycheck _today_ is being taken out), then you end up with an effective contribution of $3500 in the Roth and $4250 in the Traditional.
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Apr 5, 2017 12:30
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Steampunk Hitler posted:Traditional: You put in $5500 of pre tax dollars, for simplicity's sake we'll say you have a flat 15% tax on this. Thus if you were to withdraw this entire amount of money you would pay your 15% tax and get $4675. This is not an apples to apples comparison. A correct comparison would be that you have $1.15 to save in both (pre and post tax) scenarios. You are cheating by giving the roth saver more income. In the 15% bracket scenario, it costs you $1.15 to buy 1 dollar of post-tax savings. It costs you $1 to buy $1 dollar of pre-tax savings. Assuming that the rate of return is the same and that you are in a 15% tax bracket at retirement this is a wash. However, If you have $1.15 to save and you put $1 into pre-tax you still have $0.15 to save for post tax, which after 15% taxes is 0.1275. If you put that 0.1275 into a roth then at retirement you will have more 12.75% more savings than just putting all your money into a Roth at the beginning. So, the correct answer is that you should always max out your pre-tax savings first.
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Apr 5, 2017 13:26
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Murgos posted:This is not an apples to apples comparison. A correct comparison would be that you have $1.15 to save in both (pre and post tax) scenarios. You are cheating by giving the roth saver more income. If I'm reading this correctly, you're assuming that you have different buckets for Traditional and Roth. If you've maxed out your Traditional then you don't have any Roth left to put the additional money.
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Apr 5, 2017 13:46
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Steampunk Hitler posted:If I'm reading this correctly, you're assuming that you have different buckets for Traditional and Roth. If you've maxed out your Traditional then you don't have any Roth left to put the additional money. Doesn't matter. Even if you put the left over 0.1275 into a non tax-advantaged account you will still have saved more money, and have more money at retirement, than having put some into a Roth. e: As far as I can tell a Roth is only actually good if your tax bracket will be higher in retirement than in accumulation. Pessimists assume that this will be the case and that taxes in the future will always be higher than they are now. Murgos fucked around with this message at 13:52 on Apr 5, 2017 |
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Apr 5, 2017 13:50
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Or if you make enough to put you above the traditional IRA deduction limit and backdoor Roth is your only option.
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Apr 5, 2017 13:58
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Murgos posted:Doesn't matter. Even if you put the left over 0.1275 into a non tax-advantaged account you will still have saved more money, and have more money at retirement, than having put some into a Roth. I don't think this is true, and certainly Boggleheads appears to generally agree with me. https://www.bogleheads.org/wiki/Traditional_versus_Roth#Maxing_out_your_retirement_accounts posted:For example, consider contributing the IRS maximum of $18,000 to a Roth 401(k), or contributing the same $18,000 to a Traditional 401(k) and investing the $5040 tax savings (28% bracket) in a taxable account.
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Apr 5, 2017 14:08
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Murgos posted:Doesn't matter. Even if you put the left over 0.1275 into a non tax-advantaged account you will still have saved more money, and have more money at retirement, than having put some into a Roth. There's a degree of hedging, I think. Most people who are saving have a lot of money in trad 401k.
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Apr 5, 2017 14:09
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Steampunk Hitler posted:I don't think this is true, and certainly Boggleheads appears to generally agree with me. Both of these cases end up saying what a lot of us have been all along: If you are constrained by contribution limits (You dont have a 401k or are maxing it out) then Roth lets you get more tax advantaged money in. If you aren't constrained (not maxing out or have mega backdoor) then its only a matter of taxes now vs taxes then.
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Apr 5, 2017 14:16
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KYOON GRIFFEY JR posted:There's a degree of hedging, I think. Most people who are saving have a lot of money in trad 401k. Yeah after max traditional 401k plus some employer match, Roth IRA makes sense as a form of "diversification."
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Apr 5, 2017 14:25
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Xenoborg posted:Both of these cases end up saying what a lot of us have been all along: If you are constrained by contribution limits (You dont have a 401k or are maxing it out) then Roth lets you get more tax advantaged money in. If you aren't constrained (not maxing out or have mega backdoor) then its only a matter of taxes now vs taxes then. Yea basically. There is of course a break even point where the ability to get more tax advantaged money isn't worth the cost of paying a (likely higher) tax now than in retirement compared to the 15% LTCG. But that gets kind of complicated because it depends on a lot of factors in the future that we can't predict today.
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Apr 5, 2017 14:29
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Just to clarify for myself. The $18000 employer 401k limit is separate from the Roth IRA $5500 limit? I can do $18k 401k + $5500 Roth?
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Apr 5, 2017 14:36
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B-Mac posted:Just to clarify for myself. The $18000 employer 401k limit is separate from the Roth IRA $5500 limit? I can do $18k 401k + $5500 Roth? Yeah I think so, so long as your AGI doesn't disqualify you from making Roth payments. Otherwise I think it's $5500 in a trad IRA as a limit.
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Apr 5, 2017 14:41
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We can also throw in that tax rates are at historic lows, and maybe even confuse it more with local taxes. I live in an area that has very high state income taxes, but will I be retiring to here or a place with no income taxes? I think it just comes down to hedging and using a variety of possible retirement vehicles.
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Apr 5, 2017 14:42
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B-Mac posted:Just to clarify for myself. The $18000 employer 401k limit is separate from the Roth IRA $5500 limit? I can do $18k 401k + $5500 Roth? EAT FASTER!!!!!! posted:Yeah I think so, so long as your AGI doesn't disqualify you from making Roth payments. Otherwise I think it's $5500 in a trad IRA as a limit. The 401k and IRA limits are entirely distinct regardless of whether you pick Traditional or Roth in either. Separately from that there are income limits (based on whether or not you have a retirement plan through work) that make you ineligible to contribute directly to a roth IRA account and also income limits that make you ineligible to contribute to a traditional IRA and deduct the contributions. In this scenario the only sane thing to do is a backdoor roth.
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Apr 5, 2017 14:46
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B-Mac posted:Just to clarify for myself. The $18000 employer 401k limit is separate from the Roth IRA $5500 limit? I can do $18k 401k + $5500 Roth? Yes, the IRA is an entirely different thing from the 401(k). IRA was created as an actual retirement account for individuals. 401(k) is based on a tax loophole designed to allow employees to defer income (and the taxes on that income.) That's partially why the 401(k) limits are much higher, they're more about "no, you're not deferring all your income so you can get out of paying tax this year."
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Apr 5, 2017 15:54
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Nail Rat posted:Yeah after max traditional 401k plus some employer match, Roth IRA makes sense as a form of "diversification." I agree completely. The Roth v. Read debate is interesting but it's extremely hard to generalize the outcomes because there are so many variables at play. However, what I would argue is the biggest benefit of the Roth is the absence of RMDs. Being able to use that money however I see fit is an awesome tool to supplement my larger 401k balance (which will be subject to RMDs).
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Apr 5, 2017 16:03
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Also great for early retirees who need funds available before they can withdraw 401k money without penalty (or at least the 4.0001 years needed to get a 401k-> Roth conversion ladder going).
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Apr 5, 2017 16:13
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Roth IRAs have more favorable legal bullshit compared to traditional IRAs, and that's the difference that makes me suggest them over traditional in 99.99% of cases. For example -- just throwing this one out there -- you can withdraw principal contributions without penalty in a Roth IRA. That's not true of Traditional IRAs or 401ks. It's difficult to overstate how valuable that is (even if you never intend to use it).
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Apr 5, 2017 16:22
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DNK posted:Roth IRAs have more favorable legal bullshit compared to traditional IRAs, and that's the difference that makes me suggest them over traditional in 99.99% of cases. Hoodwinker fucked around with this message at 16:36 on Apr 5, 2017 |
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Apr 5, 2017 16:33
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Steampunk Hitler posted:I don't think this is true, and certainly Boggleheads appears to generally agree with me. It certainly does not. What that says is that if you save in a 15% bracket and retire into a 28% (or greater) bracket then in that case a roth was the better choice. If you are saving in a 15% bracket and you retire into a >= 28% bracket, congratulations. You won retirement.
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Apr 5, 2017 18:50
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Best bet - do a little bit of everything. Roth, Traditional, Taxable.
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Apr 5, 2017 19:02
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I mean, let's be real here: if you're saving a good chunk of change every year in reasonable investments, you're probably going to be okay.
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Apr 5, 2017 19:10
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