Author Topic: Switching to Roth contributions under new tax bill  (Read 3380 times)

not_a_trex

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Switching to Roth contributions under new tax bill
« on: December 20, 2017, 09:43:30 PM »
I'm considering changing my retirement contributions from traditional to Roth for contributions up to the 12% limit. I'm not convinced these bracket changes will be around after 2025 and want to make the most of the opportunity while it's here. Has anyone else thought of this idea as well and are they going to pursue it?

Bicycle_B

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Re: Switching to Roth contributions under new tax bill
« Reply #1 on: December 20, 2017, 09:58:12 PM »
Yes on thinking of it; implementation depends on my income, which is uncertain for next year.  For me the previous rule of thumb was pay 10% but not 15%, so 12% is in the middle.

I agree intuitively that paying 12% is better for some of us than taking a chance that future tax will be less than 12%.  But it depends on a lot of individual factors.  Some people may anticipate a lot of of 0% or 10% years in their future, and therefore make a different calculation. 

I'm probably not the smartest person on this question... very interested to see others' responses.

terran

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Re: Switching to Roth contributions under new tax bill
« Reply #2 on: December 20, 2017, 10:00:57 PM »
Definitely worth considering. Don't forget to account for state taxes if you might move to a no/lower tax state in the future.

MDM

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Re: Switching to Roth contributions under new tax bill
« Reply #3 on: December 20, 2017, 11:49:40 PM »
I'm considering changing my retirement contributions from traditional to Roth for contributions up to the 12% limit.
May be semantics but more often one sees "using traditional until the marginal rate decreases to 15% or less".  Aside from the 12%/15% issue, is that what you intend?

not_a_trex

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Re: Switching to Roth contributions under new tax bill
« Reply #4 on: December 21, 2017, 08:32:22 AM »
Yes. The difference is where you set your baseline. I was approaching it from the other way where I'm under the [new 22%] tax bracket since I was already making traditional retirement contributions to lower my marginal rate. The way you said it is also valid and, I guess, the more common way to phrase it.

Thinking more about this course of action, one of the variables I'm not sure about is potential new taxation of gains within roth accounts. I want to know what the current precedent is for how taxes such as NIIT affects roth accounts in the event they create a new tax like it with a lower applicable threshold. Does that tax affect monies within roth accounts? My guess is no since it looks like your MAGI is used to calculate whether it applies to you. But I'm not sure.

MDM

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Re: Switching to Roth contributions under new tax bill
« Reply #5 on: December 21, 2017, 08:42:39 AM »
Thinking more about this course of action, one of the variables I'm not sure about is potential new taxation of gains within roth accounts. I want to know what the current precedent is for how taxes such as NIIT affects roth accounts in the event they create a new tax like it with a lower applicable threshold. Does that tax affect monies within roth accounts? My guess is no since it looks like your MAGI is used to calculate whether it applies to you. But I'm not sure.
Under existing or this new law, qualified Roth withdrawals are 100% not taxed.

What some other new law might do, who knows...?

fidreamer

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Re: Switching to Roth contributions under new tax bill
« Reply #6 on: December 21, 2017, 10:33:00 AM »
I think I am switching as well.  I had not really thought about this until this post. 

geo_kale

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Re: Switching to Roth contributions under new tax bill
« Reply #7 on: December 21, 2017, 01:47:39 PM »
Hey! My SO and I are talking through the same thing right now. For 2018 we'll be firmly in the 12% bracket after maxing our HSAs, capturing the match for our 401k and subtracting the $12,000 single deduction.

This year (2017) I saved aggressively to max my 401k and tIRA to capture the Saver's Credit...going forward we like the idea of saving more in taxable accounts to have access to money outside of traditional retirement accounts.

12% is a low rate - we might as well take advantage of it while we can right?  We'll plan to always be in the income range where qualified dividends and long term capital gains are tax free.

I think up until now a lot of the advice around pre-tax savings assumes you're into the 25%+ bracket. If you know you're in the 12% now, I think it makes sense to save post-tax. Is my logic flawed somehow?

MDM

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Re: Switching to Roth contributions under new tax bill
« Reply #8 on: December 21, 2017, 02:11:59 PM »
I think up until now a lot of the advice around pre-tax savings assumes you're into the 25%+ bracket. If you know you're in the 12% now, I think it makes sense to save post-tax. Is my logic flawed somehow?
Only if you put so much into post-tax (thus, more to the point, so little in pre-tax) that, come retirement, your taxable income is so low that your marginal rate is less than 12%.

terran

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Re: Switching to Roth contributions under new tax bill
« Reply #9 on: December 21, 2017, 02:12:19 PM »
Hey! My SO and I are talking through the same thing right now. For 2018 we'll be firmly in the 12% bracket after maxing our HSAs, capturing the match for our 401k and subtracting the $12,000 single deduction.

This year (2017) I saved aggressively to max my 401k and tIRA to capture the Saver's Credit...going forward we like the idea of saving more in taxable accounts to have access to money outside of traditional retirement accounts.

12% is a low rate - we might as well take advantage of it while we can right?  We'll plan to always be in the income range where qualified dividends and long term capital gains are tax free.

I think up until now a lot of the advice around pre-tax savings assumes you're into the 25%+ bracket. If you know you're in the 12% now, I think it makes sense to save post-tax. Is my logic flawed somehow?

You'll still pay tax on interest, and the dividends an capital gains will still effect your AGI which has an effect on things like the savers tax credit you mention, and on healthcare subsidies if those stick around in the future.

I would still prioritize roth over taxable accounts. You can also take contributions (but not gains) out of roth at any time penalty and tax free, so that maintains some of the flexibility.

Also make sure you're putting enough in tax deferred to fill up the lower tax brackets (at least the standard deduction) once you stop working.

seattlecyclone

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Re: Switching to Roth contributions under new tax bill
« Reply #10 on: December 21, 2017, 04:47:00 PM »
As was the case under previous law, the traditional vs. Roth consideration is mostly about how you expect your retirement marginal tax rate compares with your current marginal tax rate.

If your current marginal tax rate is going down, but your best guess about what your tax rate will be when you retire did not change, then reconsidering your decision could be the right thing to do.
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ShoulderThingThatGoesUp

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Re: Switching to Roth contributions under new tax bill
« Reply #11 on: December 23, 2017, 05:03:19 AM »
I'm considering putting all our 401k and IRA contributions into Roth for 2018 because it looks like we'd owe very little tax even with no deductions, and we have an HSA too.

$105,000 household income, three kids. Am I missing something?

aetheldrea

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Re: Switching to Roth contributions under new tax bill
« Reply #12 on: December 24, 2017, 06:57:37 AM »
I'm considering putting all our 401k and IRA contributions into Roth for 2018 because it looks like we'd owe very little tax even with no deductions, and we have an HSA too.

$105,000 household income, three kids. Am I missing something?
I think you still need to compare the marginal tax rate of Roth contributions now with what you expect the marginal rate to be of Traditional contributions at time of withdrawal.

There appear to have been many changes to the size, refundability and phase-out limits to the Child Tax Credit.

If a very small tax bill with Roth contributions would turn into a very large refund with Traditional contributions, that difference is your Roth tax.

I guess what I am trying to get at is that even if you get your tax bill to zero, that might not be the best strategy if you can get it to a negative number and not affect your future tax bills too much. You still need to think about it and crunch the numbers.

kayvent

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Re: Switching to Roth contributions under new tax bill
« Reply #13 on: December 24, 2017, 07:17:19 AM »
If you're in a middling or lower tax bracket, I expect the brackets in 2025 to be able about the same (most likely to ebb modestly lower). If you're in the top bracket, I expect it to either stay about the same or rise significantly. This has been the trend in Canada & the USA for the last twenty years at the federal level: the middle class don't want to pay more (they think they pay way too much), the upper middle class don't want to pay more (they think they pay way too much), and the upest middle class either foot the bill or not.

Trudie

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Re: Switching to Roth contributions under new tax bill
« Reply #14 on: December 27, 2017, 01:04:13 PM »
We're currently in the 15% (soon to be 12%) bracket.  I've elected to make Roth 401K contributions next year.

This is a complex calculus, because you're trying to read the future.  But, because so much of our $$ is in tax-advantaged accounts (our unqualified portfolio is relatively small), we'll be most concerned with ordinary tax rates in the future and they are likely to tick up.

Other factors I considered:  (1) the liquidity advantage of being able to take Roth contributions tax-free at any time; (2) creating a more "balanced" portfolio of Roth, Traditional, and Unqualified sources of funds to maximize flexibility and tax-efficiency in retirement; and (3) creating a bigger pool of Roth funds not subject to RMDs.

As for #2 -- who knows what will happen to health care, but I like the flexibility of being able to "engineer" our AGI for subsidy purposes... at least that used to be relevant...

GnomeErcy

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Re: Switching to Roth contributions under new tax bill
« Reply #15 on: December 27, 2017, 02:01:04 PM »
I'm considering putting all our 401k and IRA contributions into Roth for 2018 because it looks like we'd owe very little tax even with no deductions, and we have an HSA too.

$105,000 household income, three kids. Am I missing something?
I think you still need to compare the marginal tax rate of Roth contributions now with what you expect the marginal rate to be of Traditional contributions at time of withdrawal.

Shouldn't you use your expected effective tax rate at withdrawal time? Let's say you're in the 28% bracket when you withdrawal money - not all of it will be 28%.

However, contributions will be at your marginal tax rate.

Or am I misunderstanding how that works?

seattlecyclone

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Re: Switching to Roth contributions under new tax bill
« Reply #16 on: December 27, 2017, 04:31:12 PM »
I'm considering putting all our 401k and IRA contributions into Roth for 2018 because it looks like we'd owe very little tax even with no deductions, and we have an HSA too.

$105,000 household income, three kids. Am I missing something?
I think you still need to compare the marginal tax rate of Roth contributions now with what you expect the marginal rate to be of Traditional contributions at time of withdrawal.

Shouldn't you use your expected effective tax rate at withdrawal time? Let's say you're in the 28% bracket when you withdrawal money - not all of it will be 28%.

However, contributions will be at your marginal tax rate.

Or am I misunderstanding how that works?

Yes, you are misunderstanding how that works. The correct comparison is your current marginal tax rate against the marginal tax rate you would expect based on what you have already saved.

If you've already saved enough that you'd expect to be in the 12% bracket during retirement, you should expect the next money you put in there to be taxed at 12% when you take it out, not some effective tax rate lower than 12%.
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Ocinfo

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Re: Switching to Roth contributions under new tax bill
« Reply #17 on: December 30, 2017, 02:16:05 PM »
I’ll be sticking with primarily traditional contributions. Total marginal rate is ~33% in 2018 with state taxes. I plan on having a home base in a no tax state while living as an expat so even if taxes increase in 2025, I should still be better off. Wife and I will do $11k total into Roth IRA (Backdoor) just as a hedge.


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MMbergmann

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Re: Switching to Roth contributions under new tax bill
« Reply #18 on: December 31, 2017, 08:48:41 PM »
IMO, the decision depends on what income you have a choice to pay tax on at retirement.

RMDs have no choice, whereas low RMDs and Roth both give more choice. Capital gains have medium choice depending on how much is in the market and if you have up or down positions. Rentals are fairly illiquid for most of the value they provide i.e. home value. Etc etc.

BayAreaFrugal

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Re: Switching to Roth contributions under new tax bill
« Reply #19 on: January 02, 2018, 10:41:49 AM »
Similar thought process here. I'll be taking maternity leave in 2018, so my income will be unusually low. Normally I'd be in the 22% bracket (and make too much to contribute to a tIRA), but even though I'll be able to contribute to a tIRA in 2018, I'm thinking it might make more sense to stick with my Roth. When I last took maternity leave in 2016 I didn't think twice about switching to a tIRA, but now that I'm really thinking about it, it probably makes more sense to pay the 12% tax on the money now.

dude

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Re: Switching to Roth contributions under new tax bill
« Reply #20 on: January 03, 2018, 06:54:54 AM »
I've wrestled with this too. Been fully funding my 401k (TSP) for years, and because I have a pension, I'm likely going to get creamed pretty good on taxes when I hit RMDs at 70.5.  But just can't figure out if switching to pre-tax dollars makes sense in the here and now, and at this point, with just over a year to go until retirement, not sure if it's worth it even if it does.

aceyou

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Re: Switching to Roth contributions under new tax bill
« Reply #21 on: January 04, 2018, 01:35:39 PM »
In the same boat as Dude.  My wife and I will both get pensions, so the first dollars to come out of our Traditional IRA's will likely be taxed at a high rate right out of the gates. 

My plan is to Roth away till we completely fill the 12% bucket, then traditional everything from that point on. 


elysianfields

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Re: Switching to Roth contributions under new tax bill
« Reply #22 on: January 08, 2018, 01:58:08 PM »
I've wrestled with this too. Been fully funding my 401k (TSP) for years, and because I have a pension, I'm likely going to get creamed pretty good on taxes when I hit RMDs at 70.5.  But just can't figure out if switching to pre-tax dollars makes sense in the here and now, and at this point, with just over a year to go until retirement, not sure if it's worth it even if it does.

You may as well switch to Roth for your final year+ - every dollar taxed at the lower rate adds up, and it's easy to do within Employee Express.

As a Federal employee who will also qualify for a pension, I'm similarly tempted to switch my TSP to Roth, but too many more taxable dollars will land us in the 22% bracket.

Aside from that, I've been trying to keep my AGI low to maximize the financial aid for which we'll qualify (we have one child in college and another starting in 2019).  But now that I think about it, retirement contributions from the tax year in question have to be added back to one's income on the FAFSA anyway, so for financial aid purposes it makes no difference.

Aceyou has the right plan: as long as we can remain in the 12% bracket, it would serve us to pay the low rate and move my TSP contributions to Roth.

GnomeErcy

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Re: Switching to Roth contributions under new tax bill
« Reply #23 on: January 09, 2018, 12:19:05 PM »
I'm considering putting all our 401k and IRA contributions into Roth for 2018 because it looks like we'd owe very little tax even with no deductions, and we have an HSA too.

$105,000 household income, three kids. Am I missing something?
I think you still need to compare the marginal tax rate of Roth contributions now with what you expect the marginal rate to be of Traditional contributions at time of withdrawal.

Shouldn't you use your expected effective tax rate at withdrawal time? Let's say you're in the 28% bracket when you withdrawal money - not all of it will be 28%.

However, contributions will be at your marginal tax rate.

Or am I misunderstanding how that works?

Yes, you are misunderstanding how that works. The correct comparison is your current marginal tax rate against the marginal tax rate you would expect based on what you have already saved.

If you've already saved enough that you'd expect to be in the 12% bracket during retirement, you should expect the next money you put in there to be taxed at 12% when you take it out, not some effective tax rate lower than 12%.

Is the math in this Reddit post incorrect then?

https://www.reddit.com/r/personalfinance/comments/2jqnjy/can_we_talk_about_the_misconceptions_people_have/

MDM

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Re: Switching to Roth contributions under new tax bill
« Reply #24 on: January 09, 2018, 12:37:35 PM »
Is the math in this Reddit post incorrect then?

https://www.reddit.com/r/personalfinance/comments/2jqnjy/can_we_talk_about_the_misconceptions_people_have/
Yes, it is not correct.

Take a line from that article: "When they retire, they will withdraw $60,000 a year (the same amount they make now)."

Presumably that is based on some amount (could be zero) of pension, interest, and withdrawals (say, at 4%/yr) from traditional accounts.  Doesn't matter how much of each.  So far so good?

Now, what happens if they make an additional traditional contribution?  That causes an increase to the traditional balance in retirement, and "4%/yr of a bigger number" means they will withdraw something more than $60,000/yr.  Whatever that "something more", it is taxed at the marginal rate. 

Does it make sense why the reddit article is not correct?

terran

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Re: Switching to Roth contributions under new tax bill
« Reply #25 on: January 09, 2018, 12:42:38 PM »
I'm considering putting all our 401k and IRA contributions into Roth for 2018 because it looks like we'd owe very little tax even with no deductions, and we have an HSA too.

$105,000 household income, three kids. Am I missing something?
I think you still need to compare the marginal tax rate of Roth contributions now with what you expect the marginal rate to be of Traditional contributions at time of withdrawal.

Shouldn't you use your expected effective tax rate at withdrawal time? Let's say you're in the 28% bracket when you withdrawal money - not all of it will be 28%.

However, contributions will be at your marginal tax rate.

Or am I misunderstanding how that works?

Yes, you are misunderstanding how that works. The correct comparison is your current marginal tax rate against the marginal tax rate you would expect based on what you have already saved.

If you've already saved enough that you'd expect to be in the 12% bracket during retirement, you should expect the next money you put in there to be taxed at 12% when you take it out, not some effective tax rate lower than 12%.

Is the math in this Reddit post incorrect then?

https://www.reddit.com/r/personalfinance/comments/2jqnjy/can_we_talk_about_the_misconceptions_people_have/

Yes, it's incorrect in that it's mixing marginal rate now vs effective rate at withdrawal. All that reddit post is showing is that you do want contribute at least enough so that in the future you can completely fill all brackets lower than your current marginal bracket

Once you have contributed enough so that in the future you can completely fill all brackets lower than your current marginal bracket this means your marginal tax rate is the same at contribution and withdrawal which means the each additional dollar you have available to contribute or pay taxes now will be exactly the same at withdrawal no matter when you withdraw.

Of course, it's a lot more complicated than "just" making sure you fill all lower brackets in retirement. Tax rates could change. Your investments could do particularly well compared to how tax bracket cutoffs are increased such that the amount you "need" to withdraw pushes you up into a new bracket. Other income like a pension, social security, or earned income could fill the lower brackets.

On the other hand, since traditional and roth contributions contributed/withdrawn at the same marginal tax rate that makes your current marginal tax bracket one big margin of error to the extent that tax rates remain the same, so making some contributing "too much" to traditional (such that you more than fill all lower brackets in the future) isn't that bad a thing in that you just made a neutral choice instead of a bad (or good) choice.

GnomeErcy

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Re: Switching to Roth contributions under new tax bill
« Reply #26 on: January 09, 2018, 12:49:24 PM »
Got it TY for the explanation, that helps.

kenmoremmm

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Re: Switching to Roth contributions under new tax bill
« Reply #27 on: January 09, 2018, 03:27:22 PM »
interesting thread. i had just (last night) googled MMM for traditional vs roth 401k. first couple of hits were from 2012-2016 timeframe and the overwhelming consensus was that traditional was the way to go.

is the new tax code dramatically different to impact this thought process? or, is it mostly an impact of folks living the MMM FIRE lifestyle? i mean, 22% is the old 25% and 12% is the old 15%. it seems like most here are generally in the 25%+ bracking during their working days. so, the relative delta seems like a wash.

MDM

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Re: Switching to Roth contributions under new tax bill
« Reply #28 on: January 09, 2018, 03:40:06 PM »
interesting thread. i had just (last night) googled MMM for traditional vs roth 401k. first couple of hits were from 2012-2016 timeframe and the overwhelming consensus was that traditional was the way to go.
For most, it will be, even when correctly comparing marginal now vs. marginal at withdrawal. 

Quote
is the new tax code dramatically different to impact this thought process? or, is it mostly an impact of folks living the MMM FIRE lifestyle? i mean, 22% is the old 25% and 12% is the old 15%. it seems like most here are generally in the 25%+ bracking during their working days. so, the relative delta seems like a wash.
Not dramatically different, but it is different, with differences increasing the chance that Roth will be favorable.  Thus, as with any significant tax law change, it is worth considering how that affects one's situation.  Now, there might be a slightly higher percentage who could reasonably guess that Roth is better, but traditional remains likely better for most.

seattlecyclone

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Re: Switching to Roth contributions under new tax bill
« Reply #29 on: January 09, 2018, 03:43:05 PM »
I think the basic thought process is the same. If you believe your personal tax rate will be lower in retirement, lean toward traditional. What may have changed is your estimation of whether tax brackets in general will be higher during your retirement than they are now.
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elysianfields

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Re: Switching to Roth contributions under new tax bill
« Reply #30 on: January 10, 2018, 02:52:48 AM »
interesting thread. i had just (last night) googled MMM for traditional vs roth 401k. first couple of hits were from 2012-2016 timeframe and the overwhelming consensus was that traditional was the way to go.

is the new tax code dramatically different to impact this thought process? or, is it mostly an impact of folks living the MMM FIRE lifestyle? i mean, 22% is the old 25% and 12% is the old 15%. it seems like most here are generally in the 25%+ bracking during their working days. so, the relative delta seems like a wash.

Remember that most of the individual tax provisions of the TCJA sunset in 2025; also, an intervening Presidential election could give the new administration & Congress opportunities to change the law before then.

While it's difficult to make accurate predictions, especially about the future, it seems likely that the TCJA will expand the deficit and provide most of its benefits to high-income and high-asset taxpayers.  The expansion of the national debt as a percentage of GDP, in advance of the coming gap between Social Security and Medicare benefit payments and taxes, along with the perception that TCJA skews most of its benefits to those most able to pay, together will argue for an increase in marginal tax rates.  Furthermore, public support for the TCJA is perhaps the lowest ever for major legislation, and my unprofessional reading of the current press argues for a political backlash against the GOP, at least in 2018; OTOH, voter memory seems not to last longer than a whore's moan.

Therefore, I bet that you're better off paying the current 12% or 22% rates by using Roth retirement plan options than you might be some years hence.

Employees (such as I) who will receive taxable pension income would also benefit by contributing to Roth now, as the pension income will fill up the lower tax brackets in retirement.

djadziadax

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Re: Switching to Roth contributions under new tax bill
« Reply #31 on: January 10, 2018, 08:38:09 AM »
All, I started contributing to Roth after my AGI was above the maximum to qualify for the tIRA pre-tax contribution. As per the IRS, you cannot deduct your tIRA contribution if you AGI is above 72K (single). Isn't that correct? In that case, it makes no sense to contribute to a tIRA, no?


MDM

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Re: Switching to Roth contributions under new tax bill
« Reply #32 on: January 10, 2018, 08:43:03 AM »
All, I started contributing to Roth after my AGI was above the maximum to qualify for the tIRA pre-tax contribution. As per the IRS, you cannot deduct your tIRA contribution if you AGI is above 72K (single). Isn't that correct? In that case, it makes no sense to contribute to a tIRA, no?
Correct.  That does leave the issue of traditional 401k vs. Roth 401k.

djadziadax

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Re: Switching to Roth contributions under new tax bill
« Reply #33 on: January 10, 2018, 09:30:54 AM »
All, I started contributing to Roth after my AGI was above the maximum to qualify for the tIRA pre-tax contribution. As per the IRS, you cannot deduct your tIRA contribution if you AGI is above 72K (single). Isn't that correct? In that case, it makes no sense to contribute to a tIRA, no?
Correct.  That does leave the issue of traditional 401k vs. Roth 401k.

Right, in my situation, I am maxing t401K (18500), so my next option is either roth 401K or roth IRA. Are you saying it may be better to contribute to roth 401K up to that limit also rather than roth IRA? For now I am splitting the money between roth IRA and taxable account...about 18500.

Thoughts?

MDM

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Re: Switching to Roth contributions under new tax bill
« Reply #34 on: January 10, 2018, 09:36:54 AM »
Right, in my situation, I am maxing t401K (18500), so my next option is either roth 401K or roth IRA. Are you saying it may be better to contribute to roth 401K up to that limit also rather than roth IRA? For now I am splitting the money between roth IRA and taxable account...about 18500.
$18,500 is the maximum for your combined contribution to traditional and Roth 401k.  I.e., you can't contribute $18,500 to t401k and also contribute $18,500 to Roth 401k.

See Investment Order and links therein for more on whether traditional or Roth, and 401k or IRA, is likely to be better for you.

djadziadax

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Re: Switching to Roth contributions under new tax bill
« Reply #35 on: January 10, 2018, 09:47:29 AM »
Right, in my situation, I am maxing t401K (18500), so my next option is either roth 401K or roth IRA. Are you saying it may be better to contribute to roth 401K up to that limit also rather than roth IRA? For now I am splitting the money between roth IRA and taxable account...about 18500.
$18,500 is the maximum for your combined contribution to traditional and Roth 401k.  I.e., you can't contribute $18,500 to t401k and also contribute $18,500 to Roth 401k.

See Investment Order and links therein for more on whether traditional or Roth, and 401k or IRA, is likely to be better for you.

Got it, I did review your post, and have followed. Was just momentarily confused about the roth and t 401 limits.

Thanks much for the assurance I am on the right track in the order of investments.

kenmoremmm

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Re: Switching to Roth contributions under new tax bill
« Reply #36 on: January 11, 2018, 10:19:06 PM »
interesting thread. i had just (last night) googled MMM for traditional vs roth 401k. first couple of hits were from 2012-2016 timeframe and the overwhelming consensus was that traditional was the way to go.

is the new tax code dramatically different to impact this thought process? or, is it mostly an impact of folks living the MMM FIRE lifestyle? i mean, 22% is the old 25% and 12% is the old 15%. it seems like most here are generally in the 25%+ bracking during their working days. so, the relative delta seems like a wash.

Remember that most of the individual tax provisions of the TCJA sunset in 2025; also, an intervening Presidential election could give the new administration & Congress opportunities to change the law before then.

While it's difficult to make accurate predictions, especially about the future, it seems likely that the TCJA will expand the deficit and provide most of its benefits to high-income and high-asset taxpayers.  The expansion of the national debt as a percentage of GDP, in advance of the coming gap between Social Security and Medicare benefit payments and taxes, along with the perception that TCJA skews most of its benefits to those most able to pay, together will argue for an increase in marginal tax rates.  Furthermore, public support for the TCJA is perhaps the lowest ever for major legislation, and my unprofessional reading of the current press argues for a political backlash against the GOP, at least in 2018; OTOH, voter memory seems not to last longer than a whore's moan.

Therefore, I bet that you're better off paying the current 12% or 22% rates by using Roth retirement plan options than you might be some years hence.

Employees (such as I) who will receive taxable pension income would also benefit by contributing to Roth now, as the pension income will fill up the lower tax brackets in retirement.

so, personal question i guess. if my current tax bracket per the new code is 22%, and i'm in a no tax state, would the consensus be to use the roth 401k given probability of future higher tax rates? i don't expect to FIRE for awhile (at least 10 years, maybe 15), so i know a lot can happen.

MDM

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Re: Switching to Roth contributions under new tax bill
« Reply #37 on: January 11, 2018, 10:30:03 PM »
so, personal question i guess. if my current tax bracket per the new code is 22%, and i'm in a no tax state, would the consensus be to use the roth 401k given probability of future higher tax rates? i don't expect to FIRE for awhile (at least 10 years, maybe 15), so i know a lot can happen.
There is the probability (somewhere between 0 and 100%) of higher tax rates overall, and there is the probability of what your individual retirement income will be, relative to your current income.

Assuming no change in the overall tax brackets, what do you expect for your own current vs. retirement marginal tax rates?

kenmoremmm

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Re: Switching to Roth contributions under new tax bill
« Reply #38 on: January 12, 2018, 11:06:28 AM »
so, personal question i guess. if my current tax bracket per the new code is 22%, and i'm in a no tax state, would the consensus be to use the roth 401k given probability of future higher tax rates? i don't expect to FIRE for awhile (at least 10 years, maybe 15), so i know a lot can happen.
There is the probability (somewhere between 0 and 100%) of higher tax rates overall, and there is the probability of what your individual retirement income will be, relative to your current income.

Assuming no change in the overall tax brackets, what do you expect for your own current vs. retirement marginal tax rates?

i would anticipate my withdrawal rate to fall into a lower tax bracket than my current marginal rate.

MDM

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Re: Switching to Roth contributions under new tax bill
« Reply #39 on: January 12, 2018, 12:29:53 PM »
so, personal question i guess. if my current tax bracket per the new code is 22%, and i'm in a no tax state, would the consensus be to use the roth 401k given probability of future higher tax rates? i don't expect to FIRE for awhile (at least 10 years, maybe 15), so i know a lot can happen.
There is the probability (somewhere between 0 and 100%) of higher tax rates overall, and there is the probability of what your individual retirement income will be, relative to your current income.

Assuming no change in the overall tax brackets, what do you expect for your own current vs. retirement marginal tax rates?

i would anticipate my withdrawal rate to fall into a lower tax bracket than my current marginal rate.
Based on that, it is likely traditional contributions now will work out better for you.

aceyou

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Re: Switching to Roth contributions under new tax bill
« Reply #40 on: January 13, 2018, 04:19:11 PM »
Alright, it's done.  My 403B contributions are now all Roth 403B's...this year will look like the following:

Roth IRA's (me and DW) :11k
Roth 403B's: 37k
457's: 36k

Total Roth'ed 2018: 48k
Total Traditional:  36k

I predict that future me will thank me.