Thanks, stuckinmn, excellent post, I agree almost completely with it.
the backdoor roth is a great deal, but is unavailable for many like me that have rollover IRAs since the conversion will be taxed pro-rata as a distribution from those rollover IRAs and I will get a tax hit on that. Seems that many folks have these rollovers so I'm not sure the availability of backdoor roths is as widespread as often reported.
Agreed, chances are the Backdoor Roth only makes sense for relatively young high-income workers, or older ones who had an epiphany and just started saving for retirement for the first time right now. But everyone is still
eligible for it; whether it's a wise move or not is a separate question, and one that can only be asked if the person is aware the possibility exists. And note that those two types of people (or at least the first), while they might be rare, are likely to be overrepresented among Mustachians vs. the general population.
If you are somewhere in between you have to make some guesses.
Yeah, so my point is that the probabilities are significantly different for Mustachians than they are for the general population, so we should avoid simply repeating that generalized advice. Some of the unknowns become much more known for Mustachians.
The shock and excitement generated by the
tax bill of ZERO thread indicates that even among Mustachians, there are many who still don't truly grasp how low our future taxes will be. GoCurryCracker didn't really do anything super-innovative or tricky to get that zero tax bill; most post-retirement Mustachians would achieve the same, by simply falling into it due to the circumstances they set up that allowed their early retirement.
So I think we need to take every opportunity we can to show the places where "conventional wisdom" is not particularly applicable to Mustachians. I'm not saying that there won't be any Mustachians for whom the conventional wisdom ends up being the optimal choice, but I think that in this case we should not use the conventional wisdom as the
default advice.
The big problem is there no way to know what future tax rates will be. It is highly likely, in my opinion, that tax rates will have to rise at some point to address the US budget problems.
I agree that general tax rates are likely to rise. However, I see two mitigating factors for Mustachians:
1) It seems much more likely that the increases would hit middle and upper-income people; tax increases on the "poor" are neither very popular nor that great at generating revenue.
2) The retirement time horizon for Mustachians is probably on the order of a decade, not 3 or 4 decades; the uncertainty of future rates becomes more certain when the future isn't as far away.
Personally, if I can pay 10 or 15% tax on some income now and never have to pay on it again, I'd pay it now, just for the sake of certainty. But at a 25% rate, I'd rather take my chances and defer it to to the future. Your analysis may vary.
With my current numbers, it would take a pretty giant change in tax laws for me to end up paying a 15%
effective rate in retirement (heck, I pay less than 20% now, when my income is 4x higher!); I'd still make the bet to defer even at a 10% current marginal rate. "Zero" is just so much smaller than anything that's not zero.