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I think CAbound has demonstrated that paying attention to and minimizing taxable income can maximize after-tax cash. It's quite possible to have lots of spendable after-tax cash without increasing income and incurring a large tax liability.
And use what amounts to Medicaid as health insurance . I just have an ethics issue with that ..Medicaid health insurance is for those who are close to poverty.
There are lots of things in life where just because we could do something does not mean we should do it
Last edited by mathjak107; 09-07-2020 at 04:49 PM..
There’s not much difference between a traditional IRA and a Roth IRA. You pay your taxes now or you pay them later.
There sure is a big difference ....that is because in retirement so much is linked to taxable income ...everything from what you pay for Medicare , to getting ss taxed to getting an aca subsidy ..then there are rmds to deal with . There is also making use of the zero capital gains brackets .
A spouse who lost a partner now is filling single too .....
Everything taken out as rmds from the traditional and reinvested in the taxable account is taxable now forever ..the Roth has no rmds and assets grow tax free forever .
See how it is not just about the tax ?
Plus our career average tax rate spanning decades is lower than our later years for most of us ....we just make the mistake of looking at our final years and comparing it to retirement .
But since most of us ramp up over decades the Roth early on can be a huge winner later
There’s not much difference between a traditional IRA and a Roth IRA. You pay your taxes now or you pay them later.
There is a huge difference. I turned 60 earlier this year, and then fully retired. Around the time of retirement, the market also tanked, so my IRA lost a lot of value. Since I was not going to work for the rest of the year, and the conditions were the best possible to convert to Roth (bottom of the market, still favorable tax structure), I converted the IRA to Roth, and paid the tax on the conversion from the earnings earlier in the year (which I don't need, since I have other resources). Btw, in the years in which I contributed to my trad IRA, I contributed solely in order to reduce my taxable income in the 33-35% bracket, whereas the tax I paid on the Roth conversion was in the 22-24% tax bracket this year.
There are no RMDs from Roth, and all my expenses are covered by annuities, so I will not need to touch this Roth for at least 20 years (ie, Roth funds are earmarked for the really advanced age, if it should ever arrive). Not having to take RMDs starting at 70 is a huge advantage if you have resources other than that Roth (first, you can leave the account alone to grow, and second, you decrease your total tax liability by not having a taxable RMD).
In addition to not having mandatory withdrawals, everything that my Roth earns in the future is tax-free, including both the account growth and withdrawals. My account has increased by more than 30% since I did the Roth conversion little less than half a year ago, on which increase I will never pay any tax (as I will not on any future growth of that account).
And use what amounts to Medicaid as health insurance . I just have an ethics issue with that ..Medicaid health insurance is for those who are close to poverty.
There are lots of things in life where just because we could do something does not mean we should do it
If a person has no life [mod cut - remove personal attack] and therefore no need for earnings, and therefore no taxable earnings, then she is technically in compliance with Medicaid criteria. That program is designed for paupers, and if someone lives like a pauper, Medicaid is legally a part of that.
I do have a problem with the concept of Medicaid to start with - ie, there should be a fixed contribution to health insurance by everyone covered by the insurance. There should be no exception, and no sliding scale according to income - that would be the only way to keep premiums low for everyone. The basic ethical problem is the existence of Medicaid. The root problem are unfair things being legally available (once they are legally available, of course people will take advantage of them).
Last edited by VTsnowbird; 09-08-2020 at 11:44 AM..
There sure is a big difference ....that is because in retirement so much is linked to taxable income ...everything from what you pay for Medicare , to getting ss taxed to getting an aca subsidy ..then there are rmds to deal with . There is also making use of the zero capital gains brackets .
A spouse who lost a partner now is filling single too .....
Everything taken out as rmds from the traditional and reinvested in the taxable account is taxable now forever ..the Roth has no rmds and assets grow tax free forever .
See how it is not just about the tax ?
Plus our career average tax rate spanning decades is lower than our later years for most of us ....we just make the mistake of looking at our final years and comparing it to retirement .
But since most of us ramp up over decades the Roth early on can be a huge winner later
When I started investing for retirement a ROTH was not an option. However all things being equal the only way a ROTH beats a traditional IRA is if you are in a higher tax bracket when you start to take withdrawals. If you are converting you need to live long enough to recoup the taxes. If I am wrong in my analysis please advise.
When I started investing for retirement a ROTH was not an option. However all things being equal the only way a ROTH beats a traditional IRA is if you are in a higher tax bracket when you start to take withdrawals. If you are converting you need to live long enough to recoup the taxes. If I am wrong in my analysis please advise.
that is still not correct ... roths are about far more than just tax brackets . go back and look at all the things linked .
had i done a better job at tax planning and doing roths when i could have i could have had a nice rebate on my health insurance from 62 to 65 via an aca plan .... i could have made use of the zero capital gains brackets for income generation ... i could have had a six figure income at almost no tax while delaying social security ...
plus we could have spent down up to 24k a year from our traditional ira's using the standard deduction .. that would have given us tax free income while reducing rmd''s .
with a spouse filing single eventually and heavy rmds that can far and away make roths very powerful . i blew it because i thought like you . i never did them.
plus everything we take out for rmd's and reinvest has gains taxed forever ...the roth goes on tax free .
When I started investing for retirement a ROTH was not an option. However all things being equal the only way a ROTH beats a traditional IRA is if you are in a higher tax bracket when you start to take withdrawals. If you are converting you need to live long enough to recoup the taxes. If I am wrong in my analysis please advise.
I have lived 5.5 months so far since my final Roth conversion in March 2020 (I converted some of the account initially on a favorably down-market day in 2019 as well), and I more than recouped my taxes (the taxes on conversion were 22-24%, the tax-free gain since March is like 32-35%). Five months does not seem like a very long time to live, I have a reasonable hope of living longer :-).
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