Should You Use Roth or Pre-Tax if You're in the 24% Tax Bracket?
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- čas přidán 3. 10. 2022
- In this episode of Ready for Retirement, James discusses if you should use Roth or Pre-Tax if you're in a 24% tax bracket.
Questions Answered:
How do your taxes impact your overall financial plan?
What are the best strategies to understand your tax plan?
How do your investments impact your overall retirement plan?
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Thank you so much for this video!! Appreciate the person that submitted such detailed question and you for giving us such a detailed answer ❤
Hi James. Love the channel & your analysis. In this case their filing status is married filing joint. The real tax hit is if & when one of the spouses die. That married filing joint status becomes single. That's a tax increase that also needs to be taken into account. The 40lks/Ira's RMD's will still be the same %'s but based on a single tax filing.
I'm glad I didn't convert my Traditional IRA to a Roth IRA. In less than two years, I am going to start making QCD'S.
With that much money , how on gods green earth there NOT retired yet to really enjoy life while
There fairly young enough to do things. When your in your 70’s your not
Going to be doing a lot unless your in too top shape. You don’t need 2million to retire…
Something isn’t right. What’s the debt! Worried about tax rate diff of 2% is crazy. And why putting more in 401k.
A married couple At age 70 with a 1.3 million 401K account and SS of $5000 combined what would the max amount you could take out to keep under the 12% to 15% taxes on it
Unless you are in a really high tax bracket now and will be in a really low tax bracket at retirement you are best going with a ROTH or taxable non retirement account. With a conventional 401k, IRA, and so on you will pay full tax rates on all money so up to 37%. With a ROTH retirement account when you withdraw you will pay 0% taxes on all gains. With a taxable non retirement account you would be paying long term capital gains which for most people will max out at ether 0% or 15% depending if you withdraw under or over $42k a year if single and $83k if married. You will only have to pay the top 20% $460k if you are single and $517k if married which most people will never see.
Always max out Roths, consider Roth rollovers from 401k if you are going to get NAILED with taxes when forced with mandatory withdrawal from 401k's at 72.
The tax man sucks.
I don't get why this is such a big debate? Even if you are 37% wouldn't you rather pay it up front on a smaller amount or pay it with RMDs at retirement?
Yes, especially if you will have substantial taxable investments in addition, which is likely if you're well into the 24% bracket.
If you end up being in a lower tax bracket with RMDs, social security benefits, pensions, and any other income, then it works out great to invest in a 401K. The odds of that happening is low. However, you can spend down the 401K prior to RMDs.
We started out investing in a 401K but switched to a Roth 401K. Since RMDs now start at age 72, that gives more time to use the money in the 401K. Depending on how much is there, when we retire and how much we need, we might be able to use all or most of the money in the 401K prior to RMDs.
I'm estimating that the tax rate in each bracket will increase by 5% by the time we retire. At worse, the middle bracket becomes the low bracket and the high bracket becomes the middle bracket. The only reason that's less likely is because there's also state taxes.
There are more factors to consider and everyone has their own unique circumstances. Things like the “widow trap”, IRMAA surcharges, your heirs tax brackets etc all impact the decision, as well as the time value of money and other “forced income” in retirement such as a pension, annuity, inherited IRAs, SS etc. also state income tax (more on that later). Putting all that aside, the math is simple. If you are in a higher tax bracket today compared to when you will eventually withdraw the funds you should do pre tax. I would argue even if the tax bracket will be the same, pre tax still makes sense for the following reasons. 1. When converting you pay the tax today where $1 has more value than $1 30 years from now. 2. When you defer you don’t pay all the tax in one year. In fact, just taking the minimum RMDs you are likely never going to pay tax on the entire account during your lifetime (although yours heirs ultimately will). 3. If you are in a high tax state now but might move to Florida or another tax free state in retirement, you need to consider that in the calculation.
We experienced the pinnacle of our era in a flash. Just like Rome, the corrupt administration will bring this nation to an end. My condolences goes out to those close to retirement and may be worried about pension, surviving the rising cost of living alongside poor regulatory policies
I am 72 this year and we are getting hit by the tax bomb. James does a nice job, but he really cannot answer this question. Karen should establish a relationship with a tax professional and do some specific tax planning.... Also, James, not every retiree wants to spend to the max. There are any number of reasons where it is a good idea to hold some back.
He never says they want to spend as much as they can. But the bulk of their retirement is in 401ks that are subject to “Required Minimum Distributions” - meaning they have no choice in taking out more than their desired $10k per month.
At time stamp 18:30 he starts talking about not having to use that extra money to increase life style and discusses legacy, giving to charities, gifting, etc.
Agreed that they should hire a professional that can look at every aspect of their situation, but this is very insightful information - even if it is speaking in generals.