The problem with Roth's is that the cap is so small. 401K allows me to add $30k (plus match) a year and Roth is $7k. Congress needs to move the income cap up and allow us to shelter a lot more of our $$ like rich people get to do.
Retirement Targets
- Thread starter yowza
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The problem with Roth's is that the cap is so small. 401K allows me to add $30k (plus match) a year and Roth is $7k. Congress needs to move the income cap up and allow us to shelter a lot more of our $$ like rich people get to do.
I can try the VOO when I retire, but my wife probably won’t chill, is there a tinder site for retired people?
Those who are 50+ can contribute $30,500.
The $30,500 401k limit does not affect the additional $8000 you can contribute to a Roth IRA so you can contribute $38,500 total (if you are old - like me).
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There are lots of arguments on both sides on whether Roth or traditional tax-deferred accounts are better. One of the biggest arguments for traditional tax deferred accounts is “I will be in a lower tax bracket at retirement.” This might be accurate when you first retire, but probably not by the time you start drawing socIal security (SS) and taking traditional 401K/IRA distributions.
I retired three years ago at the age of 56, and my only income at this time is a pension. Hence, my income is lower now than when I was working. However, I will eventually start drawing SS (likely age 70) and will also have to take required minimum distributions (RMDs) from my traditional IRA at age 73. When this time comes, I will be in a higher tax bracket then I was working.
I have advised my children to opt for the Roth 401K versus the traditional 401K. Plus, the Secure 2.0 Act allows employees to request any matching contributions be placed in their Roth 401K account, as long as the employer allows for it. In addition, I advise my children to fully fund their Roth IRA’s each year.
If you are further along in your career and don’t have as much in Roth accounts as you would like, there is still time. Start by changing your 401K contributions from traditional to Roth. In addition, start contributing the maximum to a Roth IRA so long as you qualify based on your income. Lastly, if you retire, but don‘t start taking SS or traditional 401K/IRA immediately, my recommendation would be to convert your traditional IRA to a Roth IRA. You probably won’t be able to convert the entire balance because all conversions will be treated as income.
We have been converting a portion of my wife’s IRA each year since I retired. The amount we convert is how much it takes to take us to the top of our tax bracket. For example, if your income is $30,000 below the top of the 12 percent tax bracket, you should convert at least $30,000.
I retired three years ago at the age of 56, and my only income at this time is a pension. Hence, my income is lower now than when I was working. However, I will eventually start drawing SS (likely age 70) and will also have to take required minimum distributions (RMDs) from my traditional IRA at age 73. When this time comes, I will be in a higher tax bracket then I was working.
I have advised my children to opt for the Roth 401K versus the traditional 401K. Plus, the Secure 2.0 Act allows employees to request any matching contributions be placed in their Roth 401K account, as long as the employer allows for it. In addition, I advise my children to fully fund their Roth IRA’s each year.
If you are further along in your career and don’t have as much in Roth accounts as you would like, there is still time. Start by changing your 401K contributions from traditional to Roth. In addition, start contributing the maximum to a Roth IRA so long as you qualify based on your income. Lastly, if you retire, but don‘t start taking SS or traditional 401K/IRA immediately, my recommendation would be to convert your traditional IRA to a Roth IRA. You probably won’t be able to convert the entire balance because all conversions will be treated as income.
We have been converting a portion of my wife’s IRA each year since I retired. The amount we convert is how much it takes to take us to the top of our tax bracket. For example, if your income is $30,000 below the top of the 12 percent tax bracket, you should convert at least $30,000.
I still think tax rates will be lower when I retire than right now. Plus I can control taxes better in retirement than when I have weekly income.
As Jay says right above you, until Uncle Sam demands you take the money and pay him his share. SS and RMDs will surprise many people and probably bump them into same or higher tax brackets than working years. OK, if that happens, ONLY 85% of SS will be taxed.
You are correct that you can control your income and taxes better in retirement. However, this control goes away when you start drawing SS and taking RMDs.
I would encourage you to take your tax deferred accounts and do a future value calculation based on when you expect to take RMDs. I would use eight percent as your expected rate of return. I did this calculation for myself and was flabbergasted. By the time I turned 73, my income based on pension, SS, and RMDs would be 150 percent of my pre-retirement income. In order to mitigate this RMD tax nightmare, try to get as much into tax free accounts (e.g. Roths) as you can.
Company contribs can go even higher. Like close to $60k total iirc.
Handy if you own your own biz.
My folks make more in retirement than dad ever did teaching. Between SSI & IPERS it's about 150% of pre-retirement.
One reason I like Roth is you when you turn 59 and a half you don’t have to make sure you save for the taxes on withdrawal. The only way a traditional IRA comes out awash is if you actually invest the taxes you save. Maybe I’m looking at it wrong. For me Roth IRA means one less thing you have to bother with when you retire.
I have kind of a unique situation with owning shares in an LLC. Eventually those have to get sold (best way to minimize tax?) and then the money has to go somewhere, and what's the best/smart/tax-efficient way to draw it down over time?
Agree on saving - lots of index funds, simple diversification, autopilot. That part I am comfortable with. Draw down strategies I haven't learned much about yet...
I think I'm in the same boat somewhat. Mostly because of an age difference. My wife is 7 years younger. We can live off of her income and supplement with mine.
Supplement by using taxable until it jumps a bracket and then use the roth. My tax bracket could conceivably be 12% by today's numbers.
By the time I hit RMD she'll be retired. We'd rely more on my taxable and supplement with her roth.
Until I die and she has this taxable 401k issue to sort through
