Do you think taxes will go up 25% in the future as the Baby Boomers retire?

[swampwiz]

https://www.marketwatch.com/story/if-youre-over-40-and-work-youre-in-for-some-big-surprises-2018-03-16

It's a good thing I'll be fully Rothized by then!

[Mustache ride]

Swamp, if you are going to create new threads to just link an article it might be a good idea to at least post your opinion or something of substance.

[caffeine]

Swamp, if you are going to create new threads to just link an article it might be a good idea to at least post your opinion or something of substance.

I think his opinion is implied. He expects harsher taxation in the future and is relieved he has fully went Roth.

With that said, I do believe taxes will begin to go up within the next 20 years due to automation and more elderly requirement benefits (Medicare & Medicaid). After my non-Roth has been maxed for 10 years, I'll probably focus on Roth for the remainder to hedge against increased taxation.

[thd7t]

I believe that our tax system will probably also shift toward being more progressive as taxes go up, so I don't know if going Roth would benefit me, particularly if I plan a lean retirement.

[alanB]

The researchers just believe taxes may go up if trends play out the way they expect: lower economic growth, surging health care costs, rising income inequality, lagging wages, a cyclical downturn in the second half of the decade, a decline in interest rates and major job displacement

I do not know whether all 7 of those things will happen, so I guess I do not know the answer.

We make a lot of money (in my opinion) and only pay 12% federal tax, so a 25% increase would still be 15% net.  Not exactly the end of times.  Disregarding the fact that I hope to pay little to no tax in 2030, Roth or not.

[TheAnonOne]

Income taxes, that you are avoiding, are so demonized that I think the increases will be little to none.

What I see as more likely are fees, tolls, and other use-taxes coming into play. Basically you may get double screwed on your ROTH push. Which only hedges against income taxes.

[VoteCthulu]

A national sales tax or VAT would hit me the hardest, so that's probably what they'll do. If so, I may have to move to Belize.

[Tabaxus]

We're eventually going to have to adopt a VAT to plug the hole, but yes, if I could buy an option that would pay out if taxes increased by 25% in the next 10-20 years, I would absolutely buy that option.

[Laserjet3051]

I think my income taxes will go down in the future (10-30 year span from now). Can't comment on sales, property and other taxes, but I am confident enough in my prediction that I do not use Roth IRA but rather, use exclusively traditional for my IRA contributions. YMMV

[BTDretire]

I'm thinking about doing Roth Conversions this year.
But it's a tough decision.
I doubt I will fall within the 12% tax bracket in 8 years,
when I have to start taking RMDs.
But that assumes there will be a 12% bracket.
If the 12% stays and it creeps up 3% with inflation the $77,400 top end
will be $98,000 in 8 years.
 When I'm 70-1/2 our combined SS could be $44,300
 My RMDs could be  $29,000
and my VTSAX dividends could be $15,000
 For a total $88,300 So I may stay in the 12% bracket
 However, when my wife is 70-1/2 the 12% bracket would be $110,000
and our expected income would be $121,000, so in the next bracket.

 If I do a Roth conversion, I will lose 12% now that has 8 years to grow,
 that could over come any tax rate changes!

I used 8% growth rate and 3% inflation for SS and tax bracket creep.
 It's all very confusing.

[MustacheAndaHalf]

If I do a Roth conversion, I will lose 12% now that has 8 years to grow,
 that could over come any tax rate changes!

Would you rather double your money then pay 12%, or pay 12% then double your money?

One qualitative advantage of a Roth IRA is certainty.  You pay tax and have after tax money, so you don't need to guess your future tax bracket.  If the results for Roth or Traditional IRA are close enough, I'd favor a Roth conversion for the certainty you gain.

Many people like Traditional IRA with a Roth Conversion ladder, which sounds like what you're considering.  You convert some money each year with an eye towards the tax bracket.

[grantmeaname]

A national sales tax or VAT would hit me the hardest, so that's probably what they'll do. If so, I may have to move to Belize.

VAT will hit people who spend a lot much harder than people who spend a little, so I'm all for it. (Of course, if you have already done all of your earning and are living off post-tax money for the rest of you're life, it's not good.)

I would much rather pay higher taxes for the rest of my life than hand my children the amount of debt that my parents handed me.

[BTDretire]

If I do a Roth conversion, I will lose 12% now that has 8 years to grow,
 that could over come any tax rate changes!

Would you rather double your money then pay 12%, or pay 12% then double your money?

 I ask you to do the calculation--- I'll do it and then you can and see if you get a different answer. I'll use numbers that will just about double the money. 8 years to grow and 9% growth rate.
$1,000,000 at 9% for 8 years grows to $1,992,562.64, minus 12% tax, equals 1,753.455.12
Or $1,000,000 minus 12% tax equals $880,000 at 9% for 8 years grows to $1,753,455.12
 I have done this 3 times over the last few months and I'm still flabergasted!
This is the compound interest calculator I use.
http://www.moneychimp.com/calculator/compound_interest_calculator.htm
 I did use 12% tax rate which is not realistic if you did this all in one year,
but you can use any tax rate and get the same answer.
 Please prove me wrong.
 At this point I want to do Roth conversions only because I think Tax brackets will be higher in 8 years.

One qualitative advantage of a Roth IRA is certainty.  You pay tax and have after tax money, so you don't need to guess your future tax bracket.  If the results for Roth or Traditional IRA are close enough, I'd favor a Roth conversion for the certainty you gain.

Many people like Traditional IRA with a Roth Conversion ladder, which sounds like what you're considering.  You convert some money each year with an eye towards the tax bracket.

[grantmeaname]

That’s called the ‘commutative property of multiplication’.

(1-t)(1+r)(1+r)(1+r)(1+r)=(1+r)(1+r)(1+r)(1+r)(1-t)

[BTDretire]

That’s called the ‘commutative property of multiplication’.

(1-t)(1+r)(1+r)(1+r)(1+r)=(1+r)(1+r)(1+r)(1+r)(1-t)

 I think it was you that told me that before, but I'm still amazed.
 So, that fact leads me to believe there are three good reasons to
do Roth conversions. Add to my list if you see more.
1. You think tax rates will increase for your bracket at RMD time. (at least for me at 63)
2. A Roth is easier for your heirs to inherit.
3. The extra income from a traditional IRA will push you into higher tax Brackets.
EDIT, found a fourth.
4. If one spouse dies, that could push the remaining spouse to a higher bracket.

My conundrum is, If I put money into mine and my wife's SEP/IRA we stay in the 15% tax bracket.
 If I don't that money will jump to the 25% bracket, so I will probably be in a lower bracket at retirement.
That's for 2017, 2018 may be a different ballgame, and that's when I will do some November bookkeeping,
to see where I stand with, the 20% pass thru, no kid deductions, the college tuition and the standard deduction.

[grantmeaname]

The only other one I’d add is that the tax brackets are one way your marginal tax rate can move, but phaseouts and benefits based on AGI and MAGI are another. So for example, more money in a Roth lowers your AGI which may make less of your social security taxable.

[BTDretire]

It really does come down to present vs future tax brackets, which I can see being tricky for you guys to estimate.
Do you have maximum amounts that you can contribute to Roth?

 Yes, 2018 is $6,850 + $1,000 if your over 55 yrs old.
In 2018 the second bracket is 12%, this is a new lower rate, and I don't now that
it will be around in 8 years. That is the game we need to play.
But, the rules of games aren't supposed to change while your playing. :-(

[BTDretire]

If I do a Roth conversion, I will lose 12% now that has 8 years to grow,
 that could over come any tax rate changes!

Would you rather double your money then pay 12%, or pay 12% then double your money?

One qualitative advantage of a Roth IRA is certainty.  You pay tax and have after tax money, so you don't need to guess your future tax bracket.  If the results for Roth or Traditional IRA are close enough, I'd favor a Roth conversion for the certainty you gain.

Many people like Traditional IRA with a Roth Conversion ladder, which sounds like what you're considering.  You convert some money each year with an eye towards the tax bracket.

On the forum I ask you to run the numbers relating to your question above. I didn't see any response, so I attempted to send you a PM with the following, (It says you have blocked my PM, I couldn't tell if that was personal or everyone.)

Hi MustacheAndaHalf,
 Just wonder if you did the calculations.
You can pick your dollar amount and the growth rate and the before and after tax rate.
Just be sure to remove the tax from the taxed before amount.
Example.
If you do a Roth conversion,
$100,000 at 12% leaves $88,000 to invest and grow, but no taxes later.
Leaving it all in a tIRA,
$100,000 0% taxes leaves $100,000 to invest and grow but 12% taxes later.
 What amounts do you get for each?
                         Thanks, Qmavam

[grantmeaname]

You get the same thing unless the tax rates or investment returns are different in the Roth IRA scenario than in the Trad IRA scenario.

[BTDretire]

You get the same thing unless the tax rates or investment returns are different in the Roth IRA scenario than in the Trad IRA scenario.

 I agree, but I don't think others see that, I sure didn't!
Just thought others should prove it to themselves. :-)