100% agreed. I asked about Fielity managing my 401K funds and this advisor said he was not sure that Fideltity could do better than I had. He also said I needed to be 62 IIRC and move the money to an IRA. That made me feel pretty good...
*Investors Blog*
- Thread starter Warstud
- Start date
I fail to see the benefit of a Roth over IRA / 401K - unless you feel that your marginal income tax rate is going to be higher in retirement?
I’m not sure about this myself. I’ve started some Roth conversions because it will allow me to take less taxable income when I start living off my IRA savings. My understanding is that it is advantageous to keep income under a certain level. Affects subsidies and surcharges on Medicare, plus taxes on social security income. So converting now allows less taxable income in retirement.
I never considered the Medicare piece, so thank you for that.
I didn't think investment income affected social security payments? Only earned income?
I’m no advisor, but my understanding is that IRA/401K withdrawals are treated like earned income. Roth IRA withdrawals are basically invisible. So if all your retirement was in Roth, the government would see 0 income no matter how much you withdrew in that tax year.
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Another advantage of Roth is there's no RMD to deal with.
I had a low 6 figure salary when I retired at 64. Some rental income and 1/2 of my military retired pay. Modest IRA after 401k was rolled into it. Figured I was paying more taxes while working, so a Roth didn't make much sense.
Now, rental property paid off, almost all rent is income. SS between my wife and I (delayed till 70) is well over $60k. With investment income, SS, ret pay, and RMDs I'm making more than when I was working. Fortunately, after retiring I started roll overs to Roth. As much as I felt comfortable with.
Now my IRA is 40% more than when I retired, even after 3 RMDs and 9 years worth of rollovers. I should have rolled over more than I was comfortable with. My advice? If it only impacts income tax (no Obama care subsidies, etc.) roll over an uncomfortable amount after retiring. I'm still rolling over while collecting SS and RMDs, but it's not enough to offset investment gains.
One other consideration if you are married is the widow/widower tax. If single, disregard. But if married and one predeceases the other, your income taxes skyrockets - less standard deductions and single tax tables.
Now, rental property paid off, almost all rent is income. SS between my wife and I (delayed till 70) is well over $60k. With investment income, SS, ret pay, and RMDs I'm making more than when I was working. Fortunately, after retiring I started roll overs to Roth. As much as I felt comfortable with.
Now my IRA is 40% more than when I retired, even after 3 RMDs and 9 years worth of rollovers. I should have rolled over more than I was comfortable with. My advice? If it only impacts income tax (no Obama care subsidies, etc.) roll over an uncomfortable amount after retiring. I'm still rolling over while collecting SS and RMDs, but it's not enough to offset investment gains.
One other consideration if you are married is the widow/widower tax. If single, disregard. But if married and one predeceases the other, your income taxes skyrockets - less standard deductions and single tax tables.
All I can say is, I fed all my financial information into AI and it gave me an entire plan, including Roth conversion ladder starting in a few years. I never thought my income would be higher when I retired, but apparently it will be. Trust me I argued with it over and over because I truly didn’t understand how it was possible until A broke it down for me.
I recommend everyone else to do this. I found what AI had to say about my portfolio to be very interesting.
Can I ask how you formatted the question and what you included? Perhaps make up a dummy example.
I would love to see what AI says... And I doubt I will change anything... Thanks in advance.
Same. And I argued with it LOL.
Yes. I will do that at work tomorrow.
I had multiple inquiries based on what it told me.
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I took a screen shot(s) of my all my accounts showing the holdings and account titles. Give it your age and set some objectives like want to retire at 55 and live to 90. You can also ask if for a general optimization to be more tax efficient.
Here is my info I put into ChatGPT. Ask it questions like a human and it will respond. FWIW, I have been doing this for several weeks around my diet and excercise routine with great success.
Lets talk about retirement numbers and my plan to retire in December of 2032. I will be 49 years old on March 6th 2026. Here is the status on things.
I make $xxxK per year with an additional annual bonus between 20 & 35%.
I have $xM in my 401k with returns of 24% per year for the last 3 years.
I contribute xx% annually to my 401K
I have a Roth IRA with $xxK and returns of 35% per year for the last 3 years.
I contribute $7.5K per year.
I have a stock account with $xxxk in it with returns of 35% per year for the last 3 years.
I contribute $5k per year
my wife has a Roth IRA with $xxk and we contribute $7.5K per year. Returns are 35% for the last 3 years
my pension is $xk per month starting when I retire. I will take this upon retirement.
my SS will be $xk per month and my wifes will be $xK. We will take this at age 62.
We want $yk per month living expenses and $yK discretionary spending.
Our monthly expenses are $yK in retirement,
How does retirement look in December of 2032?
I just threw all my stock tickers at AI
Got generic strength and weakness about some but not all.
I provided no specific $ figures
Got generic strength and weakness about some but not all.
I provided no specific $ figures
if you convert your conventional IRA to a Roth, you have to pay taxes on the amount converted. Seems to only made sense if you are in a very low tax bracket and expect to be in a higher one in the future. If you have to pay a lot of tax out, that's money that will not be earning for you going forward.
This is why I never fully converted. I started too early you could say. Not a bad thing really
But if you invest in a tax free Roth, then you can still be making investment earnings in a Roth account that won't be taxed. In the long run, you'd probably be paying less tax on the funds that were converted to the Roth(s) than if a pre-tax type 401K was left alone until the Required Minimum Distributions came along and you were forced to make mandatory withdraws that would be taxed. Of course the tax burden from RMD would depend on how big the 401K was. A pretty large 401K would be taking big chucks of RMD out and that income would be taxes as "ordinary income", so it could put you in a higher tax bracket. On a large 401K, it would probably be most advantageous to convert to a tax free Roth (or multiple Roths) in chunks each year to keep each year's conversion tax burden controllable.
For instance, if you had a 401K worth $500,000, then at 73 (first year of the RMD) you would have an RMD of $500,000/26.5 = $18,868. If the 401K was worth 1,000,000 then the RMD at age 73 would be $37,736.
As you get older, the RMD increases. At age 85, a $500K 401K would have RMD of $31,250 and a $1M 401K RMD would be $62,500.
Even if the math favors contributing to an IRA over a Roth, or not converting an IRA to a Roth, the value of looking at a Roth account and thinking "this is all mine" is priceless.
I have an IRA that feels like a thorn stuck in my side, that will be removed soon, regardless of the math.
I have an IRA that feels like a thorn stuck in my side, that will be removed soon, regardless of the math.
I put in number of shares and ticker symbols.
