Well... Tomorrow's the big day.. "R" Day!

[part-time-Farmer-NC]

There are lots of big deer in Western Illinois.

I had planned to check out the public hunting areas and make a trip out there during the rut or post rut. Wasn't sure which side of the state has accessible public lands etc. I have done numerous DIY hunts of the years and prefer that to guided hunts.

 

[dodge man]

Our finical adviser is worried about the tax implications of our RMD’s. He had us buy some Roths but then we are paying the taxes on 401k withdrawals now. They have you coming and going on the taxes.

 

[dodge man]

I had planned to check out the public hunting areas and make a trip out there during the rut or post rut. Wasn't sure which side of the state has accessible public lands etc. I have done numerous DIY hunts of the years and prefer that to guided hunts.

I’m not sure how much public lands there are that allow deer hunting in Illinois. My impression is not a lot but I don’t know for sure.

 

[Snobdds]

I could retire now at 44, but there is no need to. A person needs to work for both mind and body. I am planning to never retire. I will always have rental houses to tinker on.

My dad still does a few consulting contractor jobs a month, just to keep him busy. He is 74. He has 12 rental houses that keep him busy also.

It's true, the only thing that will kill you dead is if you retire to the couch.

Retirement finances are simple...you need to have free cash flows. There should really be no debt and all things should be paid for without a loan. Use dividend producing stocks to replace the loan feature from a bank. Dividends and savings should be able to fund anything.

 

[drssg]

Our finical adviser is worried about the tax implications of our RMD’s. He had us buy some Roths but then we are paying the taxes on 401k withdrawals now. They have you coming and going on the taxes.

If you run a projection that assumes a constant tax rate, there is no difference between paying now (with a ROTH) vs. paying later (with a regular IRA).

If the concern is that the future RMD will be so high that it throws me into a higher tax bracket, I would consider that to be a high-class problem. I wouldn't sweat it.

 

[WinterDeere]

If you run a projection that assumes a constant tax rate, there is no difference between paying now (with a ROTH) vs. paying later (with a regular IRA).

I'm not following you. The proposed benefit of the Roth is that the taxable amount is much smaller at time of deposit, than with a standard IRA at time of withdrawal. Yes, your tax bracket may be higher at time of desposit, but for most this difference is many times smaller than the change in taxable amount after many years of growth.

 

[drssg]

I'm not following you. The proposed benefit of the Roth is that the taxable amount is much smaller at time of deposit, than with a standard IRA at time of withdrawal. Yes, your tax bracket may be higher at time of desposit, but for most this difference is many times smaller than the change in taxable amount after many years of growth.

Yes, you pay less taxes with a Roth, but the end result of your after-tax nest egg works out the same. By delaying the tax payment, you invest the tax money and receive gains on it for decades, before eventually paying taxes.

Do the math. Your wallet will tell you that the two options are equal. The deciding factor is the tax rate at the time that you pay the taxes.

 

[EscapedSuburbia]

I'm not following you. The proposed benefit of the Roth is that the taxable amount is much smaller at time of deposit, than with a standard IRA at time of withdrawal. Yes, your tax bracket may be higher at time of desposit, but for most this difference is many times smaller than the change in taxable amount after many years of growth.

Do the math both ways and you'll see that if you assume the same tax and growth rates it doesn't matter whether you pay the tax now (via Roth) or later (via Traditional). When you put money in Roth you're investing less money because the government takes its cut up front. The only way you end up with a different after tax amount when you withdraw from a Roth vs Traditional is if the tax rate changes between the time you invest and the time you withdraw. Many (most?) people make less money in retirement so are in a lower tax bracket when they retire. For them a Traditional makes sense. People who saved and invested religiously can end up having a similar income in retirement in which case it doesn't make any difference whether they did Roth or Traditional. Roth makes sense for people who will have a higher income in retirement than when working.

EDITED TO ADD AN EXAMPLE:

Let's say you have $20,000 and put it in the Traditional IRA so you invest the entire $20,000 for 10 years at 8% return. At the end of 10 years the investment has grown to $43,178. If you withdraw it and pay 12% in taxes ($5,181) you've got $37,997 left to spend.

Now instead let's say you decide to put your $20,000 in a Roth. You pay 12% tax ($2,400) so you've got $17,600 to invest. If it grows the same 8% a year and the end of 10 years it will grow to $37,997. So you'll have the same amount to spend as if you'd put it in Traditional.

 

[paulsharvey]

In theory, you would assume your taxable income is Lower once you retire, though. Typically, for the average person, your highest years will be 45-55, dipping some 55-65, and dipping significantly in the 65-75 age.

With gov pensions, there is often a misunderstanding, average of last 5 years, vs best 5 years, and for Many, the best 5 years are Not the last 5 years.

 

[WinterDeere]

By delaying the tax payment, you invest the tax money and receive gains on it for decades, before eventually paying taxes.

Okay... I see what you're doing there, now. Makes me feel a little bit better for giving up on Roth conversions.

Because of the income eligibility limits applied to Roth IRA contributions, I used to have to play the whole game of starting new conventional IRA's each year to convert to Roth, as there was no income limit on conversions. But it was such a hassle that I didn't keep up with it, after the first few years.