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anyone kicking off their 2014 investing today?

brianmanahan

brianmanahan

Lifer
just transferred money into my roth ira at vanguard, and also bought some i bonds. also bought some VTSAX and VTIAX in taxable yesterday - i couldnt wait!
 
Probably going to be putting some into my roth IRA at Vanguard today as well. Maybe go halfsie's and let the rest build-up.

I have a wedding I need to pay for so I'm a little weary about depleting my liquid cash at the moment.

So... you're putting extra into taxable accounts? Don't you have a 401k to fill-up first or something?
 
I'm self employed. First thing I do in the new year is calculate how much income tax I have to pay, then the rest of my savings after that goes into an RRSP (Canada's version of the 401k).
 
It's all weekly injections for me into the IRA and 401k.

No taxable yet - I'm shoehorning money into the tax-advantaged space right now. There's not a whole lot left over right now.


Though I suppose I do have some shuffling to do in the accounts:
- Move bonds into the damned expensive 401k plan, and keep the stock funds in the Roth IRA. (Expand the tax-free space.) I'm going to pay almost 1% AUM on anything in the 401k, so I might as well keep the slow-growing bond funds in there. Bleeeehhhhh. Until the costly managers can prove their worth, I'd rather not pay for their services.
"We'll grow your money, and charge 20x more than a passive approach. We also offer absolutely no guarantees of performance, and no refunds."
Gee, that sounds like a really lousy service offer.

- And rebalance to some more bonds, since stocks have done well this year.
 
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Do people really expect to have such a high tax burden in their retirement that a Roth makes sense over a regular IRA? I guess I'm just not seeing it.
 
Engineer said:
Do people really expect to have such a high tax burden in their retirement that a Roth makes sense over a regular IRA? I guess I'm just not seeing it.
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i dont but my income is too high to use a traditional ira. thanks obama 🙁

plus it is a little bit of tax diversification - most is tax deffered to withdrawal (401k) and some is tax-free at withdrawal (roth ira).
 
Engineer said:
Do people really expect to have such a high tax burden in their retirement that a Roth makes sense over a regular IRA? I guess I'm just not seeing it.
Click to expand...



Roth's are the best. I max out my contribution to my Roth after I max out my 401K (including my catch-up). Its a no-brainer ...
 
dud said:
Roth's are the best. I max out my contribution to my Roth after I max out my 401K (including my catch-up). Its a no-brainer ...
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Explain why it's a no-brainer since I obviously don't see it. Do you expect high tax rates when you retire?
 
Engineer said:
What did Obama sign into law that changed regular IRA's (I didn't know anything changed except the limits - both contribution and income - were raised)?
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lol he didn't, i just say that for everything

the traditional ira limit for single people has been always been pretty low
 
As for me, I'll be upping my Simple IRA (no 401k) contribution at work over the next week or so. Went with Regular IRA (both myself and wife) as the fees were much cheaper than the work IRA. The work IRA has now dropped (still high) so I'll put more in that too now.
 
Engineer said:
Explain why it's a no-brainer since I obviously don't see it. Do you expect high tax rates when you retire?
Click to expand...



All monies deposited into a Roth are already taxed. All monies (both that invested AND any gains) are free of tax at any time in the future. Look at it this way, if I had my choice between $100K in a 401K and $100K in a Roth ... I'd choose the Roth in a heartbeat. The Roth is actually worth $100K while the traditional IRA is worth $100K less any taxes due at effective tax rate when withdrawn.
 
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dud said:
All monies deposited into a Roth are already taxed. All monies (both that invested AND any gains) are free of tax at any time in the future. Look at it this way, if I had my choice between $100K in a 401K and $100K in a Roth ... I'd choose the Roth in a heartbeat. The Roth is actually worth $100K while the traditional IRA is worth $100K less any taxes due at effective tax rate when withdrawn.
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But you spent less to put the $100k into the 401k and with that said, people might be able to put more into the 401k because of the tax advantages than they could the Roth. Also, you are negating the fact that even in retirement, there is a certain portion (standard deduction for example) of the income that isn't taxable anyway.

What if my expected tax rate in retirement is much less than my tax rate today?

Still not persuaded that a Roth is the best way to go.

Edit: I just ran the Bankrate.com Roth vs Regular calculator and it gave me a $9,260 advantage at age 65 with the regular IRA "AFTER TAXES PAID".

http://www.bankrate.com/calculators/retirement/roth-traditional-ira-calculator.aspx
 
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Sweet. Just remembered that I got new Tax-Free account money starting today...

Genius government decided to give everyone $5k/year allowance accounts a few years back -- in general, any interest earned in those accounts aren't taxable. Great for investors, useless for people who don't save or put their money in CDs or savings accounts.
 
Ill be upping my investments this year. My 401k/TSP wont see an increase as it is already a good chunk.

But my two vanguard supplemental investments will be upped. Have a Roth IRA i just started last year that will get more (currently only a guaranteed 1300..50 a paycheck) and my long term savings account will probably benefit as well (currently 50 a month as well)


Hard to say if its the best way to go but it works for me and from what i have researched it seems like itll work just fine
 
Engineer said:
Do people really expect to have such a high tax burden in their retirement that a Roth makes sense over a regular IRA? I guess I'm just not seeing it.
Click to expand...

The Roth IRA is just another tool that you can use to avoid taxes during retirement. You're right in that sometimes, it may not be wise to choose a Roth IRA over a traditional IRA. There are a few scenarios that will likely play out during your journey to retirement.

Case 1: Your current marginal rate is less than 25%

If your marginal rate is less than 25%, you should almost always choose Roth. It is unlikely that the rate you pay during retirement is less than 10 or 15%, so paying the taxes now and avoiding the risk of future tax hikes is a good thing.

Case 2: Your current marginal rate is at 25%

This is pretty straightforward. If your current marginal rate is 25% and you expect to be at around 25% for retirement (because you max out your 401k perhaps), then always take the roth. The tax rate will be the same, but you will be able to put in more money that's shielded from capital gains(5500 pretax is less than 5500 after tax).

Case 3: Your current marginal rate is above 25%

If your current marginal rate is above 25%, that means you probably make over 110k, assuming you max your 401k and take the standard deduction. Unless you are very wealthy, more than likely, you will still be at the 25% tax bracket upon retirement.

From my analyses, which is taking $7638 at a 28% marginal rate and comparing the eventual payout after 30 years of a roth vs traditional, the numbers are almost the same with roth edging out a small amount.


So in conclusion, for all the common scenarios, roth is better.
 
Hacp said:
So in conclusion, for all the common scenarios, roth is better.
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Then based on the Bankrate analysis that I did (above), I'm not 'common'. Nor am I in the high marginal tax brackets (nor do I expect to be when I retire). I did run the numbers and if I had a much longer term, I would be better off in the Roth because the money could grow over a longer period and result in lower overall taxation so age and start of contributions does play a role in the numbers.

Also, capital gains rates have nothing to do with retirement accounts and taxation. You pay ordinary income taxes regardless when you take disbursements (you mention this in case #2).

And for the words 'marginal tax rate', maybe we should be using 'effective tax rate' or 'overall tax rate' (i.e. burden) for these calculations because if I make $1 over the limit, my marginal tax rate may be higher but only on the $1 that went over while my effective tax rate (i.e. burden) is essentially the same rate.
 
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Hacp said:
The Roth IRA is just another tool that you can use to avoid taxes during retirement. You're right in that sometimes, it may not be wise to choose a Roth IRA over a traditional IRA. There are a few scenarios that will likely play out during your journey to retirement.

Case 1: Your current marginal rate is less than 25%

If your marginal rate is less than 25%, you should almost always choose Roth. It is unlikely that the rate you pay during retirement is less than 10 or 15%, so paying the taxes now and avoiding the risk of future tax hikes is a good thing.

Case 2: Your current marginal rate is at 25%

This is pretty straightforward. If your current marginal rate is 25% and you expect to be at around 25% for retirement (because you max out your 401k perhaps), then always take the roth. The tax rate will be the same, but you will be able to put in more money that's shielded from capital gains(5500 pretax is less than 5500 after tax).

Case 3: Your current marginal rate is above 25%

If your current marginal rate is above 25%, that means you probably make over 110k, assuming you max your 401k and take the standard deduction. Unless you are very wealthy, more than likely, you will still be at the 25% tax bracket upon retirement.

From my analyses, which is taking $7638 at a 28% marginal rate and comparing the eventual payout after 30 years of a roth vs traditional, the numbers are almost the same with roth edging out a small amount.


So in conclusion, for all the common scenarios, roth is better.
Click to expand...

Good stuff..thnx.
 
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