Author Topic: Retirement Planning Case: Roth or Traditional IRA?  (Read 1404 times)

art642

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Retirement Planning Case: Roth or Traditional IRA?
« on: January 05, 2018, 10:21:44 AM »
Greetings, all, I'm looking for some advice. My wife and I are in our mid-30's and are saving for "retirement" sometime in the next 12 or so years. My target age is somewhere around 4850. I'm wondering where we should be investing our money now so that we can live off of it if we want once we are financially independent. (Granted, we may continue to work if we still are in fulfilling jobs!)

Here's where we're currently at:

My wife's 403b: ≈$43,000
Vanguard Traditional IRAs: ≈$63,000
Vanguard Roth IRA: ≈$33,000
Vanguard Brokerage (taxable) account: ≈$7,000

Between us we will be contributing about $17,000 a year to our 403b's (like a 401k for non-profits) and $11,000 to our IRAs.

My main question is this: Should I be putting our annual IRA money ($11,000) into Roth or Traditional IRA's? I'm worried that once we hit 48 or 50 we won't be able to access the money in a traditional IRA or 403b without taking a penalty. I'm wondering if I might put $5,500 in a Roth and $5,500 in a Trad. IRA each year. That way, once we "retire," we could pull from the Roth tax- and penalty-free while doing a traditional to Roth IRA conversion.

What do you all think? What are your strategies? We have about 12 years left working and I feel like I need a good strategy from here on out to make sure we can draw on our money when we're ready.

Thanks, all!

dandarc

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Re: Retirement Planning Case: Roth or Traditional IRA?
« Reply #1 on: January 05, 2018, 10:39:47 AM »
What is your marginal tax rate today?  What do you expect your marginal tax rate to be when withdrawing?  If marginal today > expected marginal rate on withdrawal, go traditional.  If not, go Roth.  Many on this forum are likely best served by traditional (assuming it can be deducted on the IRA side - deductibility isn't a question on the 401K/457B/403B side) at your stage of accumulation, but the answer for you is specific to your situation.

the 59.5 thing is a non-issue.  https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

Lucky Recardito

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Re: Retirement Planning Case: Roth or Traditional IRA?
« Reply #2 on: January 05, 2018, 10:44:31 AM »
What's your income (specifically, AGI)?

For MFJ, traditional IRAs stop being fully deductible at $99K, and lose all deductibility at $119K.

Roths have an income limit for contributions of 186K (for the full $5.5K per person contribution), phasing out completely at $196K.

It sound like you have more room in your 403bs, tho, if you need to lower your AGI to support your IRA contribution goals.

Many folks around here use Roth IRAs after/in addition to employer-provided 401k or 403b plans, for the "access it more easily" reason you mention. (And because many have incomes that make Traditional IRAs non-deductible, which limits their value.)

art642

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Re: Retirement Planning Case: Roth or Traditional IRA?
« Reply #3 on: January 05, 2018, 12:56:29 PM »
What is your marginal tax rate today?  What do you expect your marginal tax rate to be when withdrawing?  If marginal today > expected marginal rate on withdrawal, go traditional.  If not, go Roth.  Many on this forum are likely best served by traditional (assuming it can be deducted on the IRA side - deductibility isn't a question on the 401K/457B/403B side) at your stage of accumulation, but the answer for you is specific to your situation.

the 59.5 thing is a non-issue.  https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

I just looked at the new tax brackets for 2018. After deductions, etc. I am pretty sure we'll fall into the lowest bracket. Before that, I'm pretty sure we fell pretty cleanly into the 15% bracket. My hunch is that we'll live off of less in the future (i.e., withdraw less per year than we make and pay taxes on now).

art642

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Re: Retirement Planning Case: Roth or Traditional IRA?
« Reply #4 on: January 05, 2018, 12:58:25 PM »
What's your income (specifically, AGI)?

For MFJ, traditional IRAs stop being fully deductible at $99K, and lose all deductibility at $119K.

Roths have an income limit for contributions of 186K (for the full $5.5K per person contribution), phasing out completely at $196K.

It sound like you have more room in your 403bs, tho, if you need to lower your AGI to support your IRA contribution goals.

Many folks around here use Roth IRAs after/in addition to employer-provided 401k or 403b plans, for the "access it more easily" reason you mention. (And because many have incomes that make Traditional IRAs non-deductible, which limits their value.)

Our AGI last year was about $66,000. I don't know that we'll move tax brackets that much over time (granted who knows what the future holds for tax policy).