Author Topic: Is Roth IRA really that great?? Not sure? Taxable account benefit?  (Read 2020 times)

One

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Not sure if I understand the benefits of roth? Asking for help. If I invest in a taxable index fund like vanguard 500 I can withdrawal 77,000 of capital gains a year as a married couple with no tax? So if I needed 100,000 a year to live and had no other income I would pay no tax? Is this correct and Isn't this better than roth because I can withdrawal at any age assuming no other income? If I lose my job I just start withdrawal no tax?

Eric

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #1 on: July 12, 2018, 12:28:24 PM »
I think you're missing that during the time that you're accumulating enough money in your taxable account to be able to withdraw $100,000 per year, you'll be paying taxes on all of the dividends you receive each year.  The Roth grows tax free and isn't subject to these taxes.
"Compound interest is the most powerful force in the universe."  -- Einstein

One

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #2 on: July 12, 2018, 12:56:13 PM »
Yes, that makes perfect sense, the dividends are about 1.8 percent so you would pay 15 percent tax on that.  I see an advantage of a taxable account because it allows you to withdraw the money early with no penalty. I see the advantage of roth if you are trading but not so much if you are buy and hold indexing. The advantage of no penalty early withdrawal in the taxable account even with the taxation of dividends paying 1.8 percent at 15 percent tax could be appealing.

jacoavluha

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #3 on: July 12, 2018, 01:04:25 PM »
sure taxable beats Roth for liquidity, in that you can have your taxable brokerage money any time you want it no questions asked.
but Roth wins on taxes; once money in, never to be taxed again, period
you should do both

One

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #4 on: July 12, 2018, 01:12:20 PM »
sure taxable beats Roth for liquidity, in that you can have your taxable brokerage money any time you want it no questions asked.
but Roth wins on taxes; once money in, never to be taxed again, period
you should do both

I think the roth is fine, just not sure it's as good as everyone thinks if it's really only helping me avoid tax on dividends.

erutio

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #5 on: July 12, 2018, 01:24:42 PM »
The contribution limit to Roth is $5.5k per year anyways. 
If you are saving so much that you'll be withdrawing 100k from your investments per year, why don't you put money in both, 5.5k to the Roth, and the rest into taxable?

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #6 on: July 12, 2018, 01:25:57 PM »
As Eric pointed out there is a tax benefit of the Roth over a taxable account. Additionally you have bankruptcy protection with a Roth.

As far as liquidity concerns, contributions to the Roth can be withdrawn at any time. Only the gains are subject to penalty.

If you make enough money to max out an IRA and do a taxable account then chances are the traditional IRA is more beneficial than the Roth.

RWD

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #7 on: July 12, 2018, 01:53:08 PM »
You are not the only person to come to the conclusion that a Roth IRA isn't that great:
https://www.gocurrycracker.com/roth-sucks/

One

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #8 on: July 12, 2018, 02:10:40 PM »
As Eric pointed out there is a tax benefit of the Roth over a taxable account. Additionally you have bankruptcy protection with a Roth.

As far as liquidity concerns, contributions to the Roth can be withdrawn at any time. Only the gains are subject to penalty.

If you make enough money to max out an IRA and do a taxable account then chances are the traditional IRA is more beneficial than the Roth.

Good points, the advantage of liability protection was something I had overlooked

DreamFIRE

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #9 on: July 12, 2018, 02:38:55 PM »

See this other thread:

https://forum.mrmoneymustache.com/investor-alley/roth-401k-almost-always-better-than-a-traditional-401k/

Also, the yearly contribution limit to a Roth in $6500 in the year that you turn 50 or older.

jacoavluha

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #10 on: July 12, 2018, 03:06:58 PM »
I don't think there's a "Great Roth Controversy". And the premise or conclusion of the blog post isn't really that "Roth Sucks". Clickbait. Of course Roth is better in some situations than others. Ideally someone should have a diversified pool of funds in terms of tax treatment - pretax, Roth, and taxable - from which to draw from in the future, so that you have flexibility in trying to manage your taxes year to year, in response to withdrawal needs, tax law changes, and other factors.

talltexan

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #11 on: July 13, 2018, 08:32:12 AM »
I suspect that GOCURRYCRACKER's assumptions--geared toward a lifestyle of 50% of income--favor the traditional. People who are badass should do traditional, but I think that our friends who are half-ass should still do Roth, particularly if they're young. (note: I use half-ass to mean someone who's at least saving some money, but not at Mustachian levels)

MDM

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #12 on: July 13, 2018, 09:25:37 AM »
So if I needed 100,000 a year to live and had no other income I would pay no tax?
Sure.  All you need is the $2.5 million in the taxable account to support a 4% withdrawal rate - and the "no other income".

MDM

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #13 on: July 13, 2018, 09:44:14 AM »
I see an advantage of a taxable account because it allows you to withdraw the money early with no penalty.
You may also withdraw Roth contributions with no penalty.

If you are making partial withdrawals, advantage goes to the Roth because contributions are deemed to be withdrawn first.  With a taxable account, you can't withdraw basis only, and are thus liable for whatever tax on any capital gains in the amount withdrawn.

MDM

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #14 on: July 13, 2018, 09:49:09 AM »
I think the roth is fine, just not sure it's as good as everyone thinks if it's really only helping me avoid tax on dividends.
And, eventually, Roth withdrawals will have no effect on your SS benefit taxation. 

Once you start taking SS, capital gains will cause taxes long before that $77K number.

MDM

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #15 on: July 13, 2018, 09:55:39 AM »
GoCurryCracker's main comparison is traditional vs. Roth, not Roth vs. taxable.

While the conclusion that traditional is better than Roth for most early retirees seems correct, the math (comparing marginal rates with average rates) used to justify that conclusion is wrong.

See Traditional versus Roth - Bogleheads for the correct way for anyone to look at that choice.

RWD

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #16 on: July 13, 2018, 11:50:45 AM »
GoCurryCracker's main comparison is traditional vs. Roth, not Roth vs. taxable.

While the conclusion that traditional is better than Roth for most early retirees seems correct, the math (comparing marginal rates with average rates) used to justify that conclusion is wrong.

See Traditional versus Roth - Bogleheads for the correct way for anyone to look at that choice.

Thanks for weighing in, MDM. For the record, we do invest in Roth IRAs but only because our income is too high for traditional.

SeattleCPA

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #17 on: July 13, 2018, 12:01:55 PM »
GoCurryCracker's main comparison is traditional vs. Roth, not Roth vs. taxable.

While the conclusion that traditional is better than Roth for most early retirees seems correct, the math (comparing marginal rates with average rates) used to justify that conclusion is wrong.

See Traditional versus Roth - Bogleheads for the correct way for anyone to look at that choice.

In my professional opinion, this bit from the Bogleheads wiki is key notion:

"The main reason to prefer one type of account over the other is the comparison of marginal tax rates. If your marginal tax rate now is higher than your estimated marginal tax rate at retirement, then the traditional account is better; if it is lower, then the Roth account is better."

What I observe in nearly all of the tax returns I see where people are using Roth's, they don't understand this and go with the Roth when they shouldn't.

I wasn't going to post link to this, but here is the first in a series of blog posts I did to try and explain in very basic way why almost nobody should use a Roth:

Are Roth-IRAs and Roth-401(k) Accounts Really a Good Idea
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MDM

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #18 on: July 13, 2018, 12:08:41 PM »
...we do invest in Roth IRAs but only because our income is too high for traditional.
And a fine choice that is!

MDM

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #19 on: July 13, 2018, 12:11:57 PM »
In my professional opinion, this bit from the Bogleheads wiki is key notion:

"The main reason to prefer one type of account over the other is the comparison of marginal tax rates. If your marginal tax rate now is higher than your estimated marginal tax rate at retirement, then the traditional account is better; if it is lower, then the Roth account is better."

What I observe in nearly all of the tax returns I see where people are using Roth's, they don't understand this and go with the Roth when they shouldn't.

I wasn't going to post link to this, but here is the first in a series of blog posts I did to try and explain in very basic way why almost nobody should use a Roth:

Are Roth-IRAs and Roth-401(k) Accounts Really a Good Idea

Yes.  It's too bad the first comment to that post promulgates the erroneous "marginal vs. effective" approach.  Perhaps you could clarify that that comment is incorrect?

SeattleCPA

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #20 on: July 13, 2018, 03:30:01 PM »
...we do invest in Roth IRAs but only because our income is too high for traditional.
And a fine choice that is!

Agree with this. Absolutely.
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SeattleCPA

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #21 on: July 13, 2018, 03:51:37 PM »
In my professional opinion, this bit from the Bogleheads wiki is key notion:

"The main reason to prefer one type of account over the other is the comparison of marginal tax rates. If your marginal tax rate now is higher than your estimated marginal tax rate at retirement, then the traditional account is better; if it is lower, then the Roth account is better."

What I observe in nearly all of the tax returns I see where people are using Roth's, they don't understand this and go with the Roth when they shouldn't.

I wasn't going to post link to this, but here is the first in a series of blog posts I did to try and explain in very basic way why almost nobody should use a Roth:

Are Roth-IRAs and Roth-401(k) Accounts Really a Good Idea

Yes.  It's too bad the first comment to that post promulgates the erroneous "marginal vs. effective" approach.  Perhaps you could clarify that that comment is incorrect?

I think it is incorrect. Two examples (one simple and one more complicated) show math.

The Simple, Zero Investment Earnings Example

Probably setting the interest rate to 0% makes this easier for some folks to process. E.g., say I have $10,000 of pre-tax income and that I have two choices.

The Roth Option: I can report the income on this year's tax return when my rate is (say) 25%... so I'll pay $2500 of tax on the $10,000. But then I'll never have to pay taxes again on that leftover money. That's only $7500 in this case because interest rate is zero. But this shows the math so stay with me...

The Traditional IRA Option: I can put money into an IRA and thereby report the income on a future year's tax return when I draw the money out and my rate is (say) 15%... but in that case I'll only pay $1500 of tax on the $10,000. Again, not growth in balance because interest rate equals zero. But you see the basic math.

I will want to pay the $1500 and not the $2500. Which is the same thing as saying pay at the lower marginal rate. Which is the same thing as choosing the traditional IRA because my marginal rate in this example is lower once I retire.

The Slightly More Complex Example with Investment Earnings

BTW, if we want to dress this up with some investment income, no problem... suppose this $10,000 will earn 7.2% for ten years thereby doubling in value. Again, I have two choices.

The Roth option: I can use a Roth which means I report the $10,000 of income on this year's tax return, pay $2500 in taxes, and let the remaining $7500 go into the Roth and double to $15,000 in ten years... at which point I can draw the money without tax.

The Traditional IRA option: I can invest the entire $10,000 into a traditional IRA, let it double in value to $20,000, draw money but pay the 15% tax rate so $3,000, and end up with $17,000.

Again, paying the lower marginal rate (15% instead of 25%) makes a big difference: $15,000 vs $17,000 in this second example.
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MDM

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #22 on: July 13, 2018, 04:31:01 PM »
Two examples (one simple and one more complicated) show math.
<snip>
Sure - that's the commutative property of multiplication effect: if the retirement tax rate is lower, traditional is better.

The issue raised by that comment to your blog post, however, is "what retirement tax rate: marginal or effective?"

E.g., if a single filer could save 12% marginal now and expect to pay 10% effective and 22% marginal on withdrawals later, should the choice now be
- traditional because 12% > 10% effective, or
- Roth because 12% < 22% marginal?

The correct answer - for that situation - is "Roth".


SeattleCPA

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #23 on: July 13, 2018, 05:40:06 PM »
Two examples (one simple and one more complicated) show math.
<snip>
Sure - that's the commutative property of multiplication effect: if the retirement tax rate is lower, traditional is better.

The issue raised by that comment to your blog post, however, is "what retirement tax rate: marginal or effective?"

E.g., if a single filer could save 12% marginal now and expect to pay 10% effective and 22% marginal on withdrawals later, should the choice now be
- traditional because 12% > 10% effective, or
- Roth because 12% < 22% marginal?

The correct answer - for that situation - is "Roth".

Totally agree with everything you say above.
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MDM

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #24 on: July 13, 2018, 06:15:45 PM »
Two examples (one simple and one more complicated) show math.
<snip>
Sure - that's the commutative property of multiplication effect: if the retirement tax rate is lower, traditional is better.

The issue raised by that comment to your blog post, however, is "what retirement tax rate: marginal or effective?"

E.g., if a single filer could save 12% marginal now and expect to pay 10% effective and 22% marginal on withdrawals later, should the choice now be
- traditional because 12% > 10% effective, or
- Roth because 12% < 22% marginal?

The correct answer - for that situation - is "Roth".

Totally agree with everything you say above.
Always nice to have agreement! :)

What do you think about letting your readers know that Samir's comment to your blog post, "If the only source of income in retirement is the retirement account, the applicable tax rate will be the effective tax rate," is not correct?

SeattleCPA

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #25 on: July 15, 2018, 08:42:26 AM »
Two examples (one simple and one more complicated) show math.
<snip>
Sure - that's the commutative property of multiplication effect: if the retirement tax rate is lower, traditional is better.

The issue raised by that comment to your blog post, however, is "what retirement tax rate: marginal or effective?"

E.g., if a single filer could save 12% marginal now and expect to pay 10% effective and 22% marginal on withdrawals later, should the choice now be
- traditional because 12% > 10% effective, or
- Roth because 12% < 22% marginal?

The correct answer - for that situation - is "Roth".

Totally agree with everything you say above.
Always nice to have agreement! :)

What do you think about letting your readers know that Samir's comment to your blog post, "If the only source of income in retirement is the retirement account, the applicable tax rate will be the effective tax rate," is not correct?

MDM, you and I are on the same page... but I went back and looked at Samir's comment and I think he's sort of right and that my response clarifies as best I can the situation.

E.g., if Samir looks at putting $10,000 into IRA to delay paying a 25% tax, he should look at the marginal rate or rates he'll pay when he draws out that money.

It may be a single marginal rate (like 15%). Or it may be that he'll pay 30% on $5,000 and 0% on $5,000 (which I think is what Samir means by that effective rate).

My perhaps charitable interpretation of Samir's comment is that he's right he can't just look at the 30%, he needs to consider both the 30% and the 0%.

You and I are going to say, "well that's okay but be careful Samir because you can't simply average those two rates and start comparing the average 15% rate to the working year's marginal 25% rate."

Really, as we probably both think, he should compare the 30% rate to the 25% rate on that last $5,000... for that chunk of income, go Roth... then for that second $5,000 compare the 0% rate to the 25% rate... for that chunk go traditional.
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boarder42

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #26 on: July 15, 2018, 10:29:26 AM »
It has to do with the amount of the stache saved. Looking at marginal in retirement is not the way to look at it you must look at where the dollars will likely fall based on withdrawal strategy. If you're using 4% and for simplicity's sake let's say you plan to save up to 25x 100k spending and tax deductions are removed and you are currently in the 22% bracket. Once you have 25x the top of the 15% bracket all other funds should go to Roth bc it can be assumed that the dollars will be taxed equal to or higher than the current rate you're paying.
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MDM

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #27 on: July 15, 2018, 01:43:27 PM »
MDM, you and I are on the same page... but I went back and looked at Samir's comment and I think he's sort of right and that my response clarifies as best I can the situation.

E.g., if Samir looks at putting $10,000 into IRA to delay paying a 25% tax, he should look at the marginal rate or rates he'll pay when he draws out that money.

It may be a single marginal rate (like 15%). Or it may be that he'll pay 30% on $5,000 and 0% on $5,000 (which I think is what Samir means by that effective rate).

My perhaps charitable interpretation of Samir's comment is that he's right he can't just look at the 30%, he needs to consider both the 30% and the 0%.

You and I are going to say, "well that's okay but be careful Samir because you can't simply average those two rates and start comparing the average 15% rate to the working year's marginal 25% rate."

Really, as we probably both think, he should compare the 30% rate to the 25% rate on that last $5,000... for that chunk of income, go Roth... then for that second $5,000 compare the 0% rate to the 25% rate... for that chunk go traditional.
It's possible Samir meant what some call "effective marginal" but it may be more likely he meant what most call "effective" and not marginal at all. 

To translate that sentence:
  • Use of "marginal" to mean the rate on $1 (or $0.01) of income may appeal to calculus devotees but has no practical use.  The operative definiton of "marginal" in both Marginal Vs Effective Tax Rates And When To Use Each and Marginal tax rate - Bogleheads is useful: "dividing the amount of additional taxes that will be due (or reduced) by the amount of income involved."
  • Because a larger "amount of income involved" may span tax brackets, credit cliffs and phaseouts, etc., there may multiple rates that go into the marginal rate for that income amount, so some do use the words "effective marginal".
  • Most who use only "effective" mean the average tax on all income, starting with the very first dollar.  This is definitely not the appropriate rate for someone contemplating traditional vs. Roth, because any tax due from pensions, interest, dividends, or withdrawals from previous traditional contributions is unaffected by future traditional contributions.  The future traditional contributions, when withdrawn, will be taxed on top of that other income - in other words, at the marginal rate.

Those who think "effective" is the correct comparison will look at the yellow curve in the chart below for their withdrawal rate.  Using that for comparison to a current marginal rate, practically nobody would choose Roth.  While traditional remains better for most, it's not that much better.



Advocating use of effective rates is misleading.  If a person should use traditional anyway, no real harm done.  But if a person really should use Roth, it's poor advice to suggest otherwise.  It would be a shame if your otherwise very good post would lead some folks astray due to the comments section.

MDM

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #28 on: July 15, 2018, 01:45:26 PM »
It has to do with the amount of the stache saved. Looking at marginal in retirement is not the way to look at it you must look at where the dollars will likely fall based on withdrawal strategy. If you're using 4% and for simplicity's sake let's say you plan to save up to 25x 100k spending and tax deductions are removed and you are currently in the 22% bracket. Once you have 25x the top of the 15% bracket all other funds should go to Roth bc it can be assumed that the dollars will be taxed equal to or higher than the current rate you're paying.
Your explanation is very good support for why one should use marginal in retirement for comparison.  Why do you think it is not?

boarder42

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #29 on: July 15, 2018, 02:28:07 PM »
It has to do with the amount of the stache saved. Looking at marginal in retirement is not the way to look at it you must look at where the dollars will likely fall based on withdrawal strategy. If you're using 4% and for simplicity's sake let's say you plan to save up to 25x 100k spending and tax deductions are removed and you are currently in the 22% bracket. Once you have 25x the top of the 15% bracket all other funds should go to Roth bc it can be assumed that the dollars will be taxed equal to or higher than the current rate you're paying.
Your explanation is very good support for why one should use marginal in retirement for comparison.  Why do you think it is not?

That's what I was intending.
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MDM

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #30 on: July 15, 2018, 03:14:33 PM »
Looking at marginal in retirement is not the way to look at it....
Your explanation is very good support for why one should use marginal in retirement for comparison.  Why do you think it is not?
That's what I was intending.
OK.  Typo in the "innermost" post?

SeattleCPA

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #31 on: July 15, 2018, 06:01:44 PM »
MDM, you and I are on the same page... but I went back and looked at Samir's comment and I think he's sort of right and that my response clarifies as best I can the situation.

E.g., if Samir looks at putting $10,000 into IRA to delay paying a 25% tax, he should look at the marginal rate or rates he'll pay when he draws out that money.

It may be a single marginal rate (like 15%). Or it may be that he'll pay 30% on $5,000 and 0% on $5,000 (which I think is what Samir means by that effective rate).

My perhaps charitable interpretation of Samir's comment is that he's right he can't just look at the 30%, he needs to consider both the 30% and the 0%.

You and I are going to say, "well that's okay but be careful Samir because you can't simply average those two rates and start comparing the average 15% rate to the working year's marginal 25% rate."

Really, as we probably both think, he should compare the 30% rate to the 25% rate on that last $5,000... for that chunk of income, go Roth... then for that second $5,000 compare the 0% rate to the 25% rate... for that chunk go traditional.
It's possible Samir meant what some call "effective marginal" but it may be more likely he meant what most call "effective" and not marginal at all. 

To translate that sentence:
  • Use of "marginal" to mean the rate on $1 (or $0.01) of income may appeal to calculus devotees but has no practical use.  The operative definiton of "marginal" in both Marginal Vs Effective Tax Rates And When To Use Each and Marginal tax rate - Bogleheads is useful: "dividing the amount of additional taxes that will be due (or reduced) by the amount of income involved."
  • Because a larger "amount of income involved" may span tax brackets, credit cliffs and phaseouts, etc., there may multiple rates that go into the marginal rate for that income amount, so some do use the words "effective marginal".
  • Most who use only "effective" mean the average tax on all income, starting with the very first dollar.  This is definitely not the appropriate rate for someone contemplating traditional vs. Roth, because any tax due from pensions, interest, dividends, or withdrawals from previous traditional contributions is unaffected by future traditional contributions.  The future traditional contributions, when withdrawn, will be taxed on top of that other income - in other words, at the marginal rate.

Those who think "effective" is the correct comparison will look at the yellow curve in the chart below for their withdrawal rate.  Using that for comparison to a current marginal rate, practically nobody would choose Roth.  While traditional remains better for most, it's not that much better.



Advocating use of effective rates is misleading.  If a person should use traditional anyway, no real harm done.  But if a person really should use Roth, it's poor advice to suggest otherwise.  It would be a shame if your otherwise very good post would lead some folks astray due to the comments section.

Okay, I think you're right about Samir's comment... (I had originally read his comment to mean that he wanted to look at all the marginal rates applied against the income flowing out of the retirement account... but your reading of his comment is obviously the correct one. I was wrong.)

I replaced my original response to his comment with something that's hopefully better.
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MDM

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #32 on: July 15, 2018, 07:30:18 PM »
I replaced my original response to his comment with something that's hopefully better.
Well said!

Just want to repeat that I think your blog is very well done - thanks and keep up the good work!

shinn497

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #33 on: July 15, 2018, 11:28:53 PM »
All of the calculations I've observed say roth vs traditional is purely a matter of what you think your tax rate will be in retirement.

Personally I want to be a rich fuck that drives lambos and lives on a lake so I'll be having a roth tyvm.

Anon in Alaska

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #34 on: July 15, 2018, 11:53:25 PM »
Something else to keep in mind is that the US government is currently spending much more than it is taking in.
This can not go on forever.

If something can not go on forever, it will not go on forever. In the long run either
1) there will be no US government
2) the US government will spend significantly less
or 3) the US government will tax significantly more.

My bet is on three, so that is how I am investing. Of course even if I am right about that I could be hosed anyway if they alter the tax free status of withdrawals from a Roth.
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SeattleCPA

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #35 on: July 16, 2018, 07:07:27 AM »
I replaced my original response to his comment with something that's hopefully better.
Well said!

Just want to repeat that I think your blog is very well done - thanks and keep up the good work!

:-)
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My free downloadable ebook: Thirteen Word Retirement Plan

Dicey

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #36 on: July 16, 2018, 07:33:36 AM »
All of the calculations I've observed say roth vs traditional is purely a matter of what you think your tax rate will be in retirement.
That's our admittedly first world problem. Neither of us were ever huge wage earners, but we've been good savers and our investments have done well. It's beginning to look very likely that our income will be higher in retirement than during our working years. This is not something we ever expected. Fortunately, we did Roth, traditional and taxable, so at ieast we've hedged our bets, I suppose?

Also, if we have more than enough to live on, should we really care if we end up paying slightly more in taxes?
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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #37 on: July 16, 2018, 09:14:58 AM »
All of the calculations I've observed say roth vs traditional is purely a matter of what you think your tax rate will be in retirement.
That's our admittedly first world problem. Neither of us were ever huge wage earners, but we've been good savers and our investments have done well. It's beginning to look very likely that our income will be higher in retirement than during our working years. This is not something we ever expected. Fortunately, we did Roth, traditional and taxable, so at ieast we've hedged our bets, I suppose?

Also, if we have more than enough to live on, should we really care if we end up paying slightly more in taxes?


We have the same problem.  I always assumed our income would be less in retirement because we wouldn't be working, but as our stache grows and grows I am now concerned that our income will be higher due to required minimum distributions.  And now it looks like we will be inheriting an IRA which will require taking out even more money.  We were never big income earners, but great savers and investments have grown so much. 
« Last Edit: July 16, 2018, 09:19:22 AM by HAPPYINAZ »

PDXTabs

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #38 on: July 16, 2018, 02:05:12 PM »
We have the same problem.  I always assumed our income would be less in retirement because we wouldn't be working, but as our stache grows and grows I am now concerned that our income will be higher due to required minimum distributions.  And now it looks like we will be inheriting an IRA which will require taking out even more money.  We were never big income earners, but great savers and investments have grown so much.

Talk about a good problem to have. You can deduct up to 50% of your income as charitable contributions. IRS: Charitable Contribution Deductions.

talltexan

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #39 on: July 17, 2018, 02:27:41 PM »
All of the calculations I've observed say roth vs traditional is purely a matter of what you think your tax rate will be in retirement.
That's our admittedly first world problem. Neither of us were ever huge wage earners, but we've been good savers and our investments have done well. It's beginning to look very likely that our income will be higher in retirement than during our working years. This is not something we ever expected. Fortunately, we did Roth, traditional and taxable, so at ieast we've hedged our bets, I suppose?

Also, if we have more than enough to live on, should we really care if we end up paying slightly more in taxes?

Isn't the conventional wisdom in this situation to spend down from taxable first, because you have a basis there, so you'll put off your tax bill for the longest?

MDM

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Re: Is Roth IRA really that great?? Not sure? Taxable account benefit?
« Reply #40 on: July 17, 2018, 02:32:58 PM »
Isn't the conventional wisdom in this situation to spend down from taxable first, because you have a basis there, so you'll put off your tax bill for the longest?
That's one possibility.  Or one might plan to leave an estate to heirs, when a case can be made to spend taxable last so the heirs get the stepped up basis.

Very much an "it depends..." thing.