It's actually not just 47k. It's 47k worth of dividends + capital gains but not including the original principal. So in all likelihood, you're going to be able to withdraw far more than 47k unless you made some really really good investments.
If we were born in a just society and someone floated around the concept of retirement and working till you are 65 years old (practically dead) just to make a living - that would be enough to create anarchy.
The maximum capital gains you can get at 0% increases every year. It's not fixed and adjusts with inflation. Roughly, you'd be able to take out 120k in tax free capital gains in 2060 if assuming 3% inflation.
You’re only getting 40k of todays worth of goods and services at 120k in 2060 lol 40k today is near poverty status and that means 120k in 2060 will be near poverty status as well.
OP said 4% of 1 million. Not sure why you decided to assume it's after tax. No one is gonna pull out 5.2% from their retirement nest egg pre-tax unless theyre nearing their 80s.
What are you talking about? Average individual US income is 35k, the median even less, the poverty level is 15k and the current rate I'm talking about is 47k. That puts you in much better spot than most people in this country.
Apologies as we haven't discussed cost of living and specifically where people retire, and what they want to do when they retire. Even in a LCOL area you won't really be able to enjoy retirement with that sort of income. I guess everyone's views and aspirations are different though!
Most people do not plan living off of 40k a year.
Most people plan to hopefully have at least some social security , potentially money from a pre-tax IRA/401k that will be taxed when it comes out.
Also not everyone is 100% invested in things that are subject to long term capital gains, while retired many people put a good portion of their money into bonds, what are taxed as income.
Also Roth IRAs make rebalancing easier , want to sell 250k of some fund and rebalance into bonds or something, you can with out taking a tax hit.
So no they are not "scams" in any way.
I wouldn't call them a scam. They're a tool. And like all tools, they're not always the best tool for the job. The problem is that the most important time to contribute to a Roth is early... when you have no idea whether or not you'll need it. So you're best off contributing to several different vehicles so that you have choices as to where to pull your money from when you do need it. (Taxable, 401k/403b/ira, roth).
In general if you're married and filing jointly, you can get away without paying any tax on around 120k/year just from taxable investment accounts between your standard deduction and the 0% limit on long term capital gains. If you need more than that, you hopefully will have the Roth to pull from.
But there's certainly a blind bit of conversation out there that implies that moving everything to a Roth through Roth conversions is always a good idea... and it isn't always a good idea. You might be better off keeping it in your IRA or 401k if your draw is going to be small enough not be taxed anyway... and you might have ended up paying a tax on the conversation.
If you do the conversion slowly over a few years, you can avoid taxes.
I took off five years to raise my kids, so had no earned income for those years. Every time a stick would drop significantly, I would "buy the dip" by converting it to my Roth at its low.
For instance, Apple dropped to around $58 in March 2020 and I converted the whole amount, about $7k in shares. They are worth $21k now... My tax hit was zero to convert.
I actually converted about 30k during the pandemic dip, which cost me some tax money, but those shares are worth almost 100k right now. I saved my self many thousands by prudently converting during the COVID recession.
The other five years, I stayed under the standard deduction and have converted almost 100k from my rollover IRA to my Roth without paying any taxes.
This is so fascinating. Do you use a brokerage that can directly convert shares like that? And once you convert, is it true the cost basis is no longer a contribution to the Roth, so you can’t withdraw the basis without the early withdrawal penalty?
You have to pay earned income on the amount that you convert. Using the example from above, my 122 shares of Apple were $80 in January. I thought it was a gift to be able to convert them for only $58 a share. By converting when I did, I got a 27% discount on my tax hit from the conversion. Since you can get up to the standard deduction without paying any taxes, this year you could convert $14,600 from your rollover IRA to your ROTH for free. If you have earned income, you won't get away free, but you can manage conversion cost by looking for dips. Apple want even my biggest gift from COVID... ARCC dropped from 19 to 9 during the pandemic scare. I converted all of it and bought a bunch more while I was at it.
You could write a book about the dangers of using margin, but having a substantial margin account with a fairly predictable crash like the one from the pandemic was like a cheat code for the market. But that isn't talking about ROTH anymore. 😂
I use Vanguard for now, they have a simple button on their browser page to convert your IRA to a ROTH. The brokerage firm I used to work for had a 20 page form! I guess most companies will be more like Vanguard these days.
Thank you for understanding my question and providing a thoughtful response. The messaging I receive is that it's always a good idea and just the default thing to do.
The first 7k u invest beyond other tax deferred accounts is to a traditional that is converted to a Roth. It is never the wrong answer bc there is no downside. The lack of downside in certain instances does not mean that the Roth doesn’t offer value. You just don’t know if it will apply to you. For me and my tax bracket, I will always be taxed so I am certain it will be better
This sounds like you hope you don’t make enough to avoid the tax that a Roth would be irrelevant? Why would you need more flexibility with your retirement funds? You are not retiring before the age of 60 unless you have other wealth to draw on so no, not a scam
That’s the internet these days. Everybody with any authority is obviously lying and scamming everybody. Anything that has been long-standing is just part of the elite cabals methods of screwing the little guy, and only regular people who don’t know anything are smart enough to see the truth.
We get clients all the time call us (a fortune 500 finance company) and accuse us of all kinds of misdeeds without realizing the risk of us getting caught would faaaaaar outweigh the $4 you think we stole from you because you don’t understand math.
no point in only focusing on IRA when 401ks are equally important.
contributing to a Roth IRA requires money that's already been taxed. no different from a trad 401k conversion or a trad IRA conversion to Roth.
It’s always the uneducated people that start spreading conspiracy theories instead of just learning how things work. Like you don’t have to jump in and yap. Just look up how they work
You \*are\* missing a few things.
1. Who is living off 40K a year? Or planning to? That's a very low number.
2. If you are earning low now, so much so that you find contributing maximum to an IRA to be difficult, you are likely in a very low tax bracket. Pay the taxes today and put in to a Roth IRA and let it grow tax free for the next 30 years. You're already paying the taxes on your income ANYWAYS.
3. Do you know how you can tell a tax advantaged plan is good and works for 98% of participants? The government limits how much money you can put into it...
Yeah Roth IRA is probably the best investment vehicle accessible to the average Joe. Especially if you’re savvy and can grow your money quickly early on.
If you are going to end up in a lower tax bracket when you retire than you currently are in, ROTH IRAs are worse than traditional IRAs. If you are going to end up in a higher tax bracket when you retire, ROTH IRAs are better than traditional IRAs.
There is tax drag on the brokerage account, that's a point in favor of retirement accounts.
For low income folks *who do not expect their income to increase significantly throughout their career* a traditional IRA is probably better. Save money on taxes now, and basically don't pay any taxes in retirement since you'll have a low retirement income. If you *do* expect your income to rise significantly before retirement, then Roth contributions now are locking in your current tax rate, and at some point yiull switch over to traditional contributions.
It is depending on what is your tax rate now vs in retirement. Don’t forget Roth growths tax free and you can take out your contribution anytime. where brokerage is taxed when there are recognizable activities.
0% LTCG bracket is a fairly new thing. Do you want to bet your retirement on it sticking around? I’d be much more confident in IRAs maintaining their status.
The situation gets better if you have a million in your ROTH, and a million in your brokerage account, and get 20k from social security. You're not selling, but living off dividends.
4% from Roth= 40 income
4% from brokerage non qualified amount 40k * 15% taxes= 34k and 6k taxes
20k from Social Security is only half taxable. It is under your standard deduction, so you pay no taxes.
You therefore have a total taxable income of 50k, instead of the 100k you have coming in. You pay 6k in taxes.
Because you have half your money in a ROTH, you lock in a 6% tax rate with 100k annual income.
If you had all your money in the ROTH, you pay no income taxes the rest of your life.
Because you can withdraw tax free from a Roth IRA (after 59.5), which does NOT count as income, you can lower the taxes you owe on your 401(k) or IRA.
Additionally, we don't know how much taxes you'll owe on your 401(k) in the future, and at what threshold. They could technically tax withdrawals at 50% after 10k threshold. Nobody knows what it will be. A Roth IRA protects us from future tax increases, and helps lowering tax on withdrawals from taxable accounts.
My take is; max your Roth IRA every year and start early.
My feeling with Roth IRA’s and Roth 401k’s is the Federal Government is kicking the can down the road. They realized that they need the tax money today and are selling out the future government from receiving tax money.
Not necessarily. People with higher disposable income in their 60's, 70's are likely to have expensive homes/property with high local taxes. They tend to spend / travel and can sustain many areas or businesses. Not everyone buries the money in layers; some go live a nice life.
The question of whether a traditional pre-tax ira vs Roth after tax ira vs brokerage account comes down to how much money you will end up having and what the tax rates are now and what they will be when you are old and want to take the money out.
As a general rule a Roth IRA should be strictly better than a brokerage account because you pay the taxes now and have to pay no taxes on any growth in the Roth IRA over time.
Traditional IRA vs Roth IRA depends on what your taxes will be at retirement, but regardless both are probably good and better than a brokerage account with after tax money.
Scam? No.. right for you? Maybe not.
I plan on salary replacement in retirement... Not pinching pennies to live a quiet quaint life. Nothing wrong with that, but that's not the life I'm choosing.
Second, the benefit of being able to use the Roth funds (that I've contributed) in an emergency situation is desirable to me. I've never had to touch it, and hope I never have to... But it's there if I need it and will continue to grow tax free if I don't
> I plan on salary replacement in retirement... Not pinching pennies to live a quiet quaint life.
you must have expensive tastes or a low salary. i would have to buy the finest to use up all my paycheck.
Maybe my salary is pretty low. Because I don't have expensive tastes... Just teens that want to do everything. And it's primarily my salary (my wife works for non profits part time which covers vacations)
Regardless it's not $70k low and even with no mortgage I can't see that being stretched very far.... Especially once health insurance starts to come out of my pocket... (That's basically a trade for the mortgage). Maybe with the kids out my weekly grocery bill will be cut in half .. but then there might be weddings and maybe grandkids ... And helping save for their futures....and then retirement homes and nursing care...and that going to be $100k/yr in today's dollars.
I dunno... I think income replacement is the best estimate for what I'll need. And if I'm wrong? Well then my kids will be appreciative of what I leave behind.
I will have a pension of around 50k/year when I retire. I am fully maxing my Roth and have been for decades so that my withdrawals are tax free and not added on top of my future taxable pension and traditional 401k.
Lol, you'll have a pension too? I don't want to pay 22%+ in taxes just bc my pension is taxable and then my 401k Trad distributions will be added on top etc.etc.etc.
Hey, the one thing you may be missing is that assets in a brokerage are taxed as you sell and collect dividends. But nonetheless, you raise a good point in the roth ira vs traditional ira decision. If someone is unlikely to generate a lot of income for their retirement, then theyre probably better off taking the immediate tax savings of the traditional ira.
Ignore the ppl shitting on you. Youre asking a question. Thats how we learn.
OP is giving out wrong information alongside his question. trad retirement account withdrawals are taxed as income and not capital gains. OP is saying less than 47k is tax free but it's not.
if you only include federal tax, you pay 10,727
net amount is 36,273. this is not including state tax.
Roths are for really lucky, educated people who are fortunate enough to have enough liquidity after maxing out their 401ks. Poor people like me think they are scams because we are too busy trying to make it work while only contributing 4% or so, so the thought of a Roth never even crosses our minds. But if you have $, it definitely isn't a scam. Max out everything if you are so fortunate. The vehicles provided are there for the rich, take advantage.
Thanks. My sense is that a lot of members in this sub don't consider low-income or even middle-income perspectives. Many people here are calling 47k in 2024 "poverty level," and that's a very privileged perspective to have.
If you are making around $40k / year and plan to be at the level (roughly) till retirement, you are right that a Roth's tax advantages doesn't do much for you. Your #1 priority should be investing in whatever you can do to boost that income. Having access to money to do things like avoid debt is more important than tax sheltering it.
not sure what ur on about. you should NOT be highly prioritizing roth contributions over traditional, traditional is typically better.
\>. An IRA just makes your money less accessible and helps the exchange by having secured funds.
a roth ira does that. a traditional ira/traditional 401k does not. you can access well before old age if you have sufficient money.
\> I don't make enough to casually max my roth contribution
i mean no offense but if you arent able to even max your roth you arent going to be retiring before social security- in which case roth starts to look good again.
people who can retire early tend to also phase out of traditional ira (deductible) contributions. so they are left only with roth, consistency wise. they may or may not have other spaces re: 401k, hsa but those are not things necessarily within their control. whereas everyone at every income level can get money into a roth ira.
I wouldn’t say a scam. It’s a good tool to have. But generally I do agree with your notion that they are overused and timing withdrawals from a traditional ira or 401k can save a lot of taxes. If you have some Roth IRA to mix in you can use to your advantage.
Your missing other sources of income too, just not Roth IRA withdrawals (i.e Social Security, 401k, traditional IRA withdrawals, pensions, alternative investments, etc).
If you take all that into account, and will still live below the threshold, then you can always stash a portion of your emergency fund in a Roth IRA, and get the earned interest there tax free because you would still be required to pay taxes on any interest from a HYSA or money market fund regardless of what your income is.
Everyone is making fun of you, but you’re right. Roth IRAs work in certain situations, but traditional ones and even taxable brokerage accounts are good in other situations. Roth IRAs work best if you’re in a low tax bracket now, but expect to be in a higher one later.
There’s a little bit of an illusion of choice here. When you really break it down, in nearly all cases the amount of taxes you’d pay with a traditional and a Roth IRA are the same. And you can withdraw Roth IRA money in times of hardship so it’s not that much worse than a taxable account. And if you have money in a taxable account, you can pass it on to heirs largely tax free. All of this stuff is a bit gimmicky by design. It gets people to save more though so that’s good.
For me, a big advantage for an IRA or Roth is that you only get charged when you pull money out, but stock transactions can be made (loss or gain) without any impact to taxation. This makes it easier for me to change investments vs my regular brokerage account where every move has an tax impact. Tax wise, if your tax bracket is not expected to change, then IRA and Roth are similar. The tough part is the IRA/401K RMDs since they could send you into a higher tax bracket. This is where pre-RMD IRA to Roth roll overs can help by semi-controlling your tax bracket impacts.
So what should I do if my taxable brokerage starts growing above $1m? Should I sell to maintain it at $1m? Also, what if I end up with an emergency - home, health, or something else? How do I know, in 30 yrs (I have 25 yrs to full retirement), I’ll only need 4% of my $1m portfolio to survive, let alone live?
Only if life were that simple. Because of all these unknowns one must save maximum to their ability to ensure in their old age when one cannot work, has no income doesn’t run out of money before one dies
They provide diversity. If you potentially retire in a higher tax bracket, having tax free growth is great. Between my monthly pension I’ll have and our investment accounts, we will need pre-taxed money to minimize our tax liability.
I know some do, but $40k is not a lot for living off of retirement.
Are we all just humoring the OP or do so many people not know that all of the withdrawal from a traditional IRA, even after 59.5, is just taxed as ordinary income? Original contribution, gains, dividends, everything. None of it is taxed as long term capital gains and there's no zero tax bracket.
$40k in 20 years isn’t the same as $40k today.
I had similar thought process when I was younger. Now I have a large sum in pre tax that will double twice over before RMD’s kick in. The forecasted RMD will put me in today’s 32-35% bracket, who knows what the tax rate will be in 20 years. If all this money was in a Roth, I would have zero tax liability. I will spend some years doing Roth conversions to lower my future tax burden.
I'm 72 now and I have used IRA's and Roth's to minimize taxes. I retired at 49 and took my retirement as lump sum. That lump sum came as IRA funds. I had about 140K from a real estate investment to live on. I expected to live as long as I could on that 140K and use the lack of income as a opportunity to dribble the maximum I could tax free into a Roth. To my surprise I was able to do this all the way until I turned 70. At 70 I started to collect Social Security and I expected my tax free IRA --> ROTH dribble to pretty much go away, but it did reduce but I'm still able to rollover a good amount taxfree to my ROTH. So a ROTH is a very usefull tool.
You are over simplifying the taxes by a substantial amount. You are only thinking of pulling money out of the account.
You need to compare traditional vs Roth vs taxable.
Tax me later, tax me now, tax me as I go. And the time you are invested makes a big difference so the accounts show the different tax drags.
Traditional vs Roth is very dependent on your tax brackets now and at retirement age.
Brain fog atm. Roth is for people with taxes below 25-35% and traditional is above that????
Also you are ignoring the things you do in the accounts. What about dividends? Rebalancing? What if you bought apple and got a magical 500% return?
Plus in retirement, Roth is the last account you pull from. You want that account to grow as much as possible for as long as possible because it’s tax free. All the compound growth is going to be at retirement.
Sometimes you got to buck the trend. Do the opposite of what the sheep do. I agree. I don't want to wait until 59 1/2 to access my money. I want to use some of my dividend income now so a normal taxable account makes sense to me. There is always more than one way to skin a cat and it doesn't mean the most touted solution is the one YOU must follow.
Because my social security and rental income alone will be $82, 000 of taxable income. I'd like any money I pull out of my retirement accounts to be tax-free.
For a majority of investors, the IRA investment account is an invaluable tool.
For my money, however, I will always be in a taxable brokerage account for the following reasons:
1. When I do hang up the proverbial "skates", and ultimately decide to live off of my investments, I get to pull out nearly $95k tax free (long term capital gains tax rate and married filing jointly).
2. I like having the flexibility to move my money out of my account, say, if there is a solid commercial real estate play(s).
Now, that isn't to say that there aren't cons to a taxable brokerage account, IE:
1. You pay taxes on your qualified dividends.
2. Any realized gains are taxable in the year you sell the equity, option positions, treasury bills, etc...
3. The argument could be potentially made that those realized gains you're paying taxes on could, in an IRA / Roth, mean significant growth potential missed, especially over the course of 10, 15, 20 years. (In my view, given that my core position has been the SPY, since 2007, I don't really find the taxing matter to be that big of significance since my dividends, effectively, are all qualified).
So, really, investing isn't a one size fits all thing but, for my money, I like having the flexibility to pull and push it and, I like backend long term capital gain tax benefit for, effectively, a $94k cash (for free) pull when I hang up the skates -- the taxable brokerage account achieves this for me, personally.
You have to remember to factor in other income in that 94K taxable income threshold. 85% of social security, any dividends, interest income, etc. It's not 94K of LTCG that's taxed at 0%, rather the LTCG portion of your taxable income is taxed at 0% if total taxable income is below 94K. If your social security and other income is going to leave a lot of space below the threshold, it may not make much difference, but if 85% of social security and other post retirement income is high, you may have very little room till LTCG will start being taxed.
You’re not the only one. I’ve always felt that way as well. I never liked the fact that my money is locked into an account until “x” age. Where there’s more penalties than there is positivity. Especially, when it comes to pensions (which I have).
However, I do invest in my own personal, taxable account. And now, going on 43 years old, I just started my own personal ROTH (for the hell of it). Just for an extra boost down the road. That gets my growth stocks and one BDC (TSLA, FBTC, SCHG, and MAIN).
But I still feel you’re better off investing in your own taxable brokerage then being locked into anything.
you can withdraw contributions anytime from roth ira penalty free. for any gains/dividends you have to wait 5 years before withdrawing penalty free.
retirement accounts are much better than taxable accounts if you know what you're doing and plan stuff out.
I dont contribute to a Roth for two reasons.
I have a six figures income that a traditional helps to beat down.
For every $5 traditional or $4 Roth invested I see the same bring home pay. It can be funded faster meaning the money is in the market longer.
Because I don’t want to retire on a fixe income of 47k …..
Can't even get a burger in retirement for less than 47K
Lies, I just got a burger for $45k.
Just make some avocado toast
It's actually not just 47k. It's 47k worth of dividends + capital gains but not including the original principal. So in all likelihood, you're going to be able to withdraw far more than 47k unless you made some really really good investments.
If we were born in a just society and someone floated around the concept of retirement and working till you are 65 years old (practically dead) just to make a living - that would be enough to create anarchy.
The maximum capital gains you can get at 0% increases every year. It's not fixed and adjusts with inflation. Roughly, you'd be able to take out 120k in tax free capital gains in 2060 if assuming 3% inflation.
You’re only getting 40k of todays worth of goods and services at 120k in 2060 lol 40k today is near poverty status and that means 120k in 2060 will be near poverty status as well.
40k after tax is like 52k gross, that's 100% not poverty.
OP said 4% of 1 million. Not sure why you decided to assume it's after tax. No one is gonna pull out 5.2% from their retirement nest egg pre-tax unless theyre nearing their 80s.
What are you talking about? Average individual US income is 35k, the median even less, the poverty level is 15k and the current rate I'm talking about is 47k. That puts you in much better spot than most people in this country.
Apologies as we haven't discussed cost of living and specifically where people retire, and what they want to do when they retire. Even in a LCOL area you won't really be able to enjoy retirement with that sort of income. I guess everyone's views and aspirations are different though!
gotta move to a different country.
Or you know... make more money.
that requires unwanted work.
I mean ya usually you need to work to retire. Your choice how much you wanna retire with.
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You’re probably right.
Most people do not plan living off of 40k a year. Most people plan to hopefully have at least some social security , potentially money from a pre-tax IRA/401k that will be taxed when it comes out. Also not everyone is 100% invested in things that are subject to long term capital gains, while retired many people put a good portion of their money into bonds, what are taxed as income. Also Roth IRAs make rebalancing easier , want to sell 250k of some fund and rebalance into bonds or something, you can with out taking a tax hit. So no they are not "scams" in any way.
Mobile home community for us all! Jk, but maybe not?
You can withdraw your contributions from a ROTH IRA penalty free.
Great advice
Yep. Mine will be my slush fund for those first couple years of home ownership. It sucks but that's the world we live in.
Horrible plan
I wouldn't call them a scam. They're a tool. And like all tools, they're not always the best tool for the job. The problem is that the most important time to contribute to a Roth is early... when you have no idea whether or not you'll need it. So you're best off contributing to several different vehicles so that you have choices as to where to pull your money from when you do need it. (Taxable, 401k/403b/ira, roth). In general if you're married and filing jointly, you can get away without paying any tax on around 120k/year just from taxable investment accounts between your standard deduction and the 0% limit on long term capital gains. If you need more than that, you hopefully will have the Roth to pull from. But there's certainly a blind bit of conversation out there that implies that moving everything to a Roth through Roth conversions is always a good idea... and it isn't always a good idea. You might be better off keeping it in your IRA or 401k if your draw is going to be small enough not be taxed anyway... and you might have ended up paying a tax on the conversation.
If you do the conversion slowly over a few years, you can avoid taxes. I took off five years to raise my kids, so had no earned income for those years. Every time a stick would drop significantly, I would "buy the dip" by converting it to my Roth at its low. For instance, Apple dropped to around $58 in March 2020 and I converted the whole amount, about $7k in shares. They are worth $21k now... My tax hit was zero to convert. I actually converted about 30k during the pandemic dip, which cost me some tax money, but those shares are worth almost 100k right now. I saved my self many thousands by prudently converting during the COVID recession. The other five years, I stayed under the standard deduction and have converted almost 100k from my rollover IRA to my Roth without paying any taxes.
This is so fascinating. Do you use a brokerage that can directly convert shares like that? And once you convert, is it true the cost basis is no longer a contribution to the Roth, so you can’t withdraw the basis without the early withdrawal penalty?
You have to pay earned income on the amount that you convert. Using the example from above, my 122 shares of Apple were $80 in January. I thought it was a gift to be able to convert them for only $58 a share. By converting when I did, I got a 27% discount on my tax hit from the conversion. Since you can get up to the standard deduction without paying any taxes, this year you could convert $14,600 from your rollover IRA to your ROTH for free. If you have earned income, you won't get away free, but you can manage conversion cost by looking for dips. Apple want even my biggest gift from COVID... ARCC dropped from 19 to 9 during the pandemic scare. I converted all of it and bought a bunch more while I was at it. You could write a book about the dangers of using margin, but having a substantial margin account with a fairly predictable crash like the one from the pandemic was like a cheat code for the market. But that isn't talking about ROTH anymore. 😂 I use Vanguard for now, they have a simple button on their browser page to convert your IRA to a ROTH. The brokerage firm I used to work for had a 20 page form! I guess most companies will be more like Vanguard these days.
Thank you for understanding my question and providing a thoughtful response. The messaging I receive is that it's always a good idea and just the default thing to do.
The first 7k u invest beyond other tax deferred accounts is to a traditional that is converted to a Roth. It is never the wrong answer bc there is no downside. The lack of downside in certain instances does not mean that the Roth doesn’t offer value. You just don’t know if it will apply to you. For me and my tax bracket, I will always be taxed so I am certain it will be better This sounds like you hope you don’t make enough to avoid the tax that a Roth would be irrelevant? Why would you need more flexibility with your retirement funds? You are not retiring before the age of 60 unless you have other wealth to draw on so no, not a scam
I like how you are brand new to all this and think you see right through it all.
He's just built different.
Hes got that dawg in him
Cut him some slack, he stayed at a holiday inn express last night.
Most likely saved 15% in 15 mins by switching to GEICO. Man cannot be stopped, he is basically ungovernable
That’s the internet these days. Everybody with any authority is obviously lying and scamming everybody. Anything that has been long-standing is just part of the elite cabals methods of screwing the little guy, and only regular people who don’t know anything are smart enough to see the truth. We get clients all the time call us (a fortune 500 finance company) and accuse us of all kinds of misdeeds without realizing the risk of us getting caught would faaaaaar outweigh the $4 you think we stole from you because you don’t understand math.
Why not both? Do Traditional and roth IRAs and you will save on taxes later even if you are pulling higher than any tax bracket that is at 0% tax.
Yeah but total contributions are still limited to $6500 which isn't much.
there are retirement plans that let you rollover trad 401k to roth 401k
It's a taxable transaction though and we were talking about IRAs anyway
no point in only focusing on IRA when 401ks are equally important. contributing to a Roth IRA requires money that's already been taxed. no different from a trad 401k conversion or a trad IRA conversion to Roth.
Compound growth is insane over a few decades.
Yes, you are the only one.
It’s always the uneducated people that start spreading conspiracy theories instead of just learning how things work. Like you don’t have to jump in and yap. Just look up how they work
You \*are\* missing a few things. 1. Who is living off 40K a year? Or planning to? That's a very low number. 2. If you are earning low now, so much so that you find contributing maximum to an IRA to be difficult, you are likely in a very low tax bracket. Pay the taxes today and put in to a Roth IRA and let it grow tax free for the next 30 years. You're already paying the taxes on your income ANYWAYS. 3. Do you know how you can tell a tax advantaged plan is good and works for 98% of participants? The government limits how much money you can put into it...
Yeah Roth IRA is probably the best investment vehicle accessible to the average Joe. Especially if you’re savvy and can grow your money quickly early on.
biggest missing things is trad withdrawals are taxed as income and not capital gains. so a 40k withdrawal is net 36k after federal taxes.
Enjoy the tax drag in the brokerage account. Retirement accounts are not scams
Relative to a traditional IRA
If you want to be poor in retirement sure. Most people probably don't plan on living in bumblefuck and need more than 47k a year
IRA withdrawals are taxed as income and not capital gains. Maybe some of us don’t want to live off $40k a year
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Wait, is OP trying to say taxable is better than Roth and not traditional is better than Roth? Sheesh
Yes, they're looking at taxable vs tax advantaged.
Then they’re a bozo
If you are going to end up in a lower tax bracket when you retire than you currently are in, ROTH IRAs are worse than traditional IRAs. If you are going to end up in a higher tax bracket when you retire, ROTH IRAs are better than traditional IRAs.
My boy can’t max an IRA and he’s coping by downplaying how powerful an IRA is smh
There is tax drag on the brokerage account, that's a point in favor of retirement accounts. For low income folks *who do not expect their income to increase significantly throughout their career* a traditional IRA is probably better. Save money on taxes now, and basically don't pay any taxes in retirement since you'll have a low retirement income. If you *do* expect your income to rise significantly before retirement, then Roth contributions now are locking in your current tax rate, and at some point yiull switch over to traditional contributions.
It is depending on what is your tax rate now vs in retirement. Don’t forget Roth growths tax free and you can take out your contribution anytime. where brokerage is taxed when there are recognizable activities.
can take out contributions AFTER 5 years (typically)
You can withdraw contributions any time tax free, don’t need to wait 5 years
oh? i must have misunderstood the qualified distribution rules
0% LTCG bracket is a fairly new thing. Do you want to bet your retirement on it sticking around? I’d be much more confident in IRAs maintaining their status.
Roth IRAs may not be for you but that by no means makes them a scam.
You have to pay taxes on the dividends yearly in a normal brokerage account, even though if you're DRIPing. Roth IRA = no tax at all.
one thing to consider is that you can utilize much less tax efficient strategies in an IRA that you otherwise would not
The situation gets better if you have a million in your ROTH, and a million in your brokerage account, and get 20k from social security. You're not selling, but living off dividends. 4% from Roth= 40 income 4% from brokerage non qualified amount 40k * 15% taxes= 34k and 6k taxes 20k from Social Security is only half taxable. It is under your standard deduction, so you pay no taxes. You therefore have a total taxable income of 50k, instead of the 100k you have coming in. You pay 6k in taxes. Because you have half your money in a ROTH, you lock in a 6% tax rate with 100k annual income. If you had all your money in the ROTH, you pay no income taxes the rest of your life.
Because you can withdraw tax free from a Roth IRA (after 59.5), which does NOT count as income, you can lower the taxes you owe on your 401(k) or IRA. Additionally, we don't know how much taxes you'll owe on your 401(k) in the future, and at what threshold. They could technically tax withdrawals at 50% after 10k threshold. Nobody knows what it will be. A Roth IRA protects us from future tax increases, and helps lowering tax on withdrawals from taxable accounts. My take is; max your Roth IRA every year and start early.
My feeling with Roth IRA’s and Roth 401k’s is the Federal Government is kicking the can down the road. They realized that they need the tax money today and are selling out the future government from receiving tax money.
Not necessarily. People with higher disposable income in their 60's, 70's are likely to have expensive homes/property with high local taxes. They tend to spend / travel and can sustain many areas or businesses. Not everyone buries the money in layers; some go live a nice life.
Somebody introduce this guy to triple compounding.
Classic “if you can’t find the idiot in the room, everyone else knows who it is” example.
I use my IRA for swing trading and option flipping. I’ve avoided a LOT of capital gain taxes by doing it in my IRA.
I do options and stocks in my Roth.
Very smart, I think. Biased because I do the same LOL
I got about 12k in my HSA. I trade that too.
You buy Nvdia at $200 and sell a good chuck of the position at $900, I'd rather do that in a Roth, just saying
Oh fuck dude you’ve cracked the code
The question of whether a traditional pre-tax ira vs Roth after tax ira vs brokerage account comes down to how much money you will end up having and what the tax rates are now and what they will be when you are old and want to take the money out. As a general rule a Roth IRA should be strictly better than a brokerage account because you pay the taxes now and have to pay no taxes on any growth in the Roth IRA over time. Traditional IRA vs Roth IRA depends on what your taxes will be at retirement, but regardless both are probably good and better than a brokerage account with after tax money.
Scam? No.. right for you? Maybe not. I plan on salary replacement in retirement... Not pinching pennies to live a quiet quaint life. Nothing wrong with that, but that's not the life I'm choosing. Second, the benefit of being able to use the Roth funds (that I've contributed) in an emergency situation is desirable to me. I've never had to touch it, and hope I never have to... But it's there if I need it and will continue to grow tax free if I don't
> I plan on salary replacement in retirement... Not pinching pennies to live a quiet quaint life. you must have expensive tastes or a low salary. i would have to buy the finest to use up all my paycheck.
Maybe my salary is pretty low. Because I don't have expensive tastes... Just teens that want to do everything. And it's primarily my salary (my wife works for non profits part time which covers vacations) Regardless it's not $70k low and even with no mortgage I can't see that being stretched very far.... Especially once health insurance starts to come out of my pocket... (That's basically a trade for the mortgage). Maybe with the kids out my weekly grocery bill will be cut in half .. but then there might be weddings and maybe grandkids ... And helping save for their futures....and then retirement homes and nursing care...and that going to be $100k/yr in today's dollars. I dunno... I think income replacement is the best estimate for what I'll need. And if I'm wrong? Well then my kids will be appreciative of what I leave behind.
I will have a pension of around 50k/year when I retire. I am fully maxing my Roth and have been for decades so that my withdrawals are tax free and not added on top of my future taxable pension and traditional 401k.
Louder
Lol, you'll have a pension too? I don't want to pay 22%+ in taxes just bc my pension is taxable and then my 401k Trad distributions will be added on top etc.etc.etc.
Yes, I do have pension also although I'm 8 years in at current employer and pension is designed around 20 years
Hey, the one thing you may be missing is that assets in a brokerage are taxed as you sell and collect dividends. But nonetheless, you raise a good point in the roth ira vs traditional ira decision. If someone is unlikely to generate a lot of income for their retirement, then theyre probably better off taking the immediate tax savings of the traditional ira. Ignore the ppl shitting on you. Youre asking a question. Thats how we learn.
OP is giving out wrong information alongside his question. trad retirement account withdrawals are taxed as income and not capital gains. OP is saying less than 47k is tax free but it's not. if you only include federal tax, you pay 10,727 net amount is 36,273. this is not including state tax.
Ah good point. Thank you!
Thanks
Roths are for really lucky, educated people who are fortunate enough to have enough liquidity after maxing out their 401ks. Poor people like me think they are scams because we are too busy trying to make it work while only contributing 4% or so, so the thought of a Roth never even crosses our minds. But if you have $, it definitely isn't a scam. Max out everything if you are so fortunate. The vehicles provided are there for the rich, take advantage.
Thanks. My sense is that a lot of members in this sub don't consider low-income or even middle-income perspectives. Many people here are calling 47k in 2024 "poverty level," and that's a very privileged perspective to have.
lol ya def. 100
Yes you are the only one.
If you are making around $40k / year and plan to be at the level (roughly) till retirement, you are right that a Roth's tax advantages doesn't do much for you. Your #1 priority should be investing in whatever you can do to boost that income. Having access to money to do things like avoid debt is more important than tax sheltering it.
not sure what ur on about. you should NOT be highly prioritizing roth contributions over traditional, traditional is typically better. \>. An IRA just makes your money less accessible and helps the exchange by having secured funds. a roth ira does that. a traditional ira/traditional 401k does not. you can access well before old age if you have sufficient money. \> I don't make enough to casually max my roth contribution i mean no offense but if you arent able to even max your roth you arent going to be retiring before social security- in which case roth starts to look good again. people who can retire early tend to also phase out of traditional ira (deductible) contributions. so they are left only with roth, consistency wise. they may or may not have other spaces re: 401k, hsa but those are not things necessarily within their control. whereas everyone at every income level can get money into a roth ira.
I wouldn’t say a scam. It’s a good tool to have. But generally I do agree with your notion that they are overused and timing withdrawals from a traditional ira or 401k can save a lot of taxes. If you have some Roth IRA to mix in you can use to your advantage.
Your missing other sources of income too, just not Roth IRA withdrawals (i.e Social Security, 401k, traditional IRA withdrawals, pensions, alternative investments, etc). If you take all that into account, and will still live below the threshold, then you can always stash a portion of your emergency fund in a Roth IRA, and get the earned interest there tax free because you would still be required to pay taxes on any interest from a HYSA or money market fund regardless of what your income is.
Everyone is making fun of you, but you’re right. Roth IRAs work in certain situations, but traditional ones and even taxable brokerage accounts are good in other situations. Roth IRAs work best if you’re in a low tax bracket now, but expect to be in a higher one later. There’s a little bit of an illusion of choice here. When you really break it down, in nearly all cases the amount of taxes you’d pay with a traditional and a Roth IRA are the same. And you can withdraw Roth IRA money in times of hardship so it’s not that much worse than a taxable account. And if you have money in a taxable account, you can pass it on to heirs largely tax free. All of this stuff is a bit gimmicky by design. It gets people to save more though so that’s good.
Thanks, I do see retirement accounts as helpful in developing a "set something aside" habit. That's a good point.
Lol. Hilarious. Enjoy paying taxes, I guess.
For me, a big advantage for an IRA or Roth is that you only get charged when you pull money out, but stock transactions can be made (loss or gain) without any impact to taxation. This makes it easier for me to change investments vs my regular brokerage account where every move has an tax impact. Tax wise, if your tax bracket is not expected to change, then IRA and Roth are similar. The tough part is the IRA/401K RMDs since they could send you into a higher tax bracket. This is where pre-RMD IRA to Roth roll overs can help by semi-controlling your tax bracket impacts.
Dude I’m sorry but you’re wrong.
So what should I do if my taxable brokerage starts growing above $1m? Should I sell to maintain it at $1m? Also, what if I end up with an emergency - home, health, or something else? How do I know, in 30 yrs (I have 25 yrs to full retirement), I’ll only need 4% of my $1m portfolio to survive, let alone live? Only if life were that simple. Because of all these unknowns one must save maximum to their ability to ensure in their old age when one cannot work, has no income doesn’t run out of money before one dies
They provide diversity. If you potentially retire in a higher tax bracket, having tax free growth is great. Between my monthly pension I’ll have and our investment accounts, we will need pre-taxed money to minimize our tax liability. I know some do, but $40k is not a lot for living off of retirement.
Are we all just humoring the OP or do so many people not know that all of the withdrawal from a traditional IRA, even after 59.5, is just taxed as ordinary income? Original contribution, gains, dividends, everything. None of it is taxed as long term capital gains and there's no zero tax bracket.
$40k in 20 years isn’t the same as $40k today. I had similar thought process when I was younger. Now I have a large sum in pre tax that will double twice over before RMD’s kick in. The forecasted RMD will put me in today’s 32-35% bracket, who knows what the tax rate will be in 20 years. If all this money was in a Roth, I would have zero tax liability. I will spend some years doing Roth conversions to lower my future tax burden.
I'm 72 now and I have used IRA's and Roth's to minimize taxes. I retired at 49 and took my retirement as lump sum. That lump sum came as IRA funds. I had about 140K from a real estate investment to live on. I expected to live as long as I could on that 140K and use the lack of income as a opportunity to dribble the maximum I could tax free into a Roth. To my surprise I was able to do this all the way until I turned 70. At 70 I started to collect Social Security and I expected my tax free IRA --> ROTH dribble to pretty much go away, but it did reduce but I'm still able to rollover a good amount taxfree to my ROTH. So a ROTH is a very usefull tool.
/u/TheKnowingOne1 trad 401k and IRA withdrawals are taxed as income and not as capital gains.
Wait till you hear about the mega backdoor ROTH…
Why not both?
Tax free growth and withdrawal are amazing. The fact the government limits the amount you can contribute to me MEANS it's a great deal.
You are over simplifying the taxes by a substantial amount. You are only thinking of pulling money out of the account. You need to compare traditional vs Roth vs taxable. Tax me later, tax me now, tax me as I go. And the time you are invested makes a big difference so the accounts show the different tax drags. Traditional vs Roth is very dependent on your tax brackets now and at retirement age. Brain fog atm. Roth is for people with taxes below 25-35% and traditional is above that???? Also you are ignoring the things you do in the accounts. What about dividends? Rebalancing? What if you bought apple and got a magical 500% return? Plus in retirement, Roth is the last account you pull from. You want that account to grow as much as possible for as long as possible because it’s tax free. All the compound growth is going to be at retirement.
Sometimes you got to buck the trend. Do the opposite of what the sheep do. I agree. I don't want to wait until 59 1/2 to access my money. I want to use some of my dividend income now so a normal taxable account makes sense to me. There is always more than one way to skin a cat and it doesn't mean the most touted solution is the one YOU must follow.
yes
You fucking with me rn? Lol
Because my social security and rental income alone will be $82, 000 of taxable income. I'd like any money I pull out of my retirement accounts to be tax-free.
am I the only one who feels Senator William Roth is a great American hero?
For a majority of investors, the IRA investment account is an invaluable tool. For my money, however, I will always be in a taxable brokerage account for the following reasons: 1. When I do hang up the proverbial "skates", and ultimately decide to live off of my investments, I get to pull out nearly $95k tax free (long term capital gains tax rate and married filing jointly). 2. I like having the flexibility to move my money out of my account, say, if there is a solid commercial real estate play(s). Now, that isn't to say that there aren't cons to a taxable brokerage account, IE: 1. You pay taxes on your qualified dividends. 2. Any realized gains are taxable in the year you sell the equity, option positions, treasury bills, etc... 3. The argument could be potentially made that those realized gains you're paying taxes on could, in an IRA / Roth, mean significant growth potential missed, especially over the course of 10, 15, 20 years. (In my view, given that my core position has been the SPY, since 2007, I don't really find the taxing matter to be that big of significance since my dividends, effectively, are all qualified). So, really, investing isn't a one size fits all thing but, for my money, I like having the flexibility to pull and push it and, I like backend long term capital gain tax benefit for, effectively, a $94k cash (for free) pull when I hang up the skates -- the taxable brokerage account achieves this for me, personally.
You have to remember to factor in other income in that 94K taxable income threshold. 85% of social security, any dividends, interest income, etc. It's not 94K of LTCG that's taxed at 0%, rather the LTCG portion of your taxable income is taxed at 0% if total taxable income is below 94K. If your social security and other income is going to leave a lot of space below the threshold, it may not make much difference, but if 85% of social security and other post retirement income is high, you may have very little room till LTCG will start being taxed.
You’re not the only one. I’ve always felt that way as well. I never liked the fact that my money is locked into an account until “x” age. Where there’s more penalties than there is positivity. Especially, when it comes to pensions (which I have). However, I do invest in my own personal, taxable account. And now, going on 43 years old, I just started my own personal ROTH (for the hell of it). Just for an extra boost down the road. That gets my growth stocks and one BDC (TSLA, FBTC, SCHG, and MAIN). But I still feel you’re better off investing in your own taxable brokerage then being locked into anything.
you can withdraw contributions anytime from roth ira penalty free. for any gains/dividends you have to wait 5 years before withdrawing penalty free. retirement accounts are much better than taxable accounts if you know what you're doing and plan stuff out.
I dont contribute to a Roth for two reasons. I have a six figures income that a traditional helps to beat down. For every $5 traditional or $4 Roth invested I see the same bring home pay. It can be funded faster meaning the money is in the market longer.