Tax Season - so a Tax question

Status
Not open for further replies.
Joined
Dec 28, 2016
Messages
2,892
Location
MURICA
As the title suggests, have already changed things on my end and will be maxing out on 401K and HSA account contributions.

Looking for a roth IRA(or should I go for traditional?) option, is there anything else I can do for a sound financial choice while lowering taxes?

Thanks for all the advice and help
thumbsup2.gif
 
Only you know whether you think you'll draw more in retirement than you make now. No one knows what tax rates will be like.

Throw your dice and hope for the best. I minimize my tax burden now and hope that my spendy ways will subside in old age.
 
I choose the other saying I can afford to pay the taxes now and put into Roth whenever I can. Then it will grow tax free and when i may not be able to work taxes will be less of a burden. Like he said above though you just don't know what the taxes will be like in retirement. They might be higher or they might be lower. Traditional IRA you will have to pay taxes on all the gains too. But you do have more in the account earning as well.

Decision not to be made lightly but there are some unknowns
 
What do you do for a living? Is there something that you could purchase and use as a business expense? Some states let you write off lease payments 100%
 
100% Roth over traditional.
Pay a 25% tax on 200k in contributions -Roth
Pay a 15% tax on 1 million+ in growth in 30 years-trad

Roth 50k in taxes vs trad 150k taxes

Also if you are maxing 401k/hsa/trad ira your RMD at age 85 is going to be mind-boggling like many hundred thousands of dollars.

I would do Roth, no RMD , ever.
Tax free GROWTH, which is going to be the vast majority of the accounts value
 
I'm in a little bit of a different situation. No 401k I own a small business. I pound money into mutual funds and Roth IRA.Hopefully selling my business after my youngest goes off to college.
 
I started working well before Roth's were available but switched as soon as they appeared. I had to transfer funds from a 457 plan that I maxed out and also got money from an employer buy out of my share of a retirement plan. My total Federal taxes the last year I worked was $14.8K, I've paid $27K+ for the last couple of years (I became widowed and also moved about $6K from regular to Roth to keep from REALLY getting hit in the future).

They always said you should shelter as much income as possible because you'll make less money in retirement. If you're as cheap as I've been on unnecessary spending that ain't necessarily so. Put as much in possible in a Roth and carefully consider putting extra funds above the match in a regular 401/403b/457 into a non-deferred account. Capitol gains are cheaper than getting bled out by delayed payments at regular income rates.
 
Last edited:
Originally Posted By: maverickfhs
As the title suggests, have already changed things on my end and will be maxing out on 401K and HSA account contributions.

Looking for a roth IRA(or should I go for traditional?) option, is there anything else I can do for a sound financial choice while lowering taxes?

Thanks for all the advice and help
thumbsup2.gif



A Roth will help with taxes in the future but not with taxes in 2018. Still there are some good reasons to consider one. While you add money after taxes, when you withdraw there are no taxes, so the interest you earn is tax free. There are some restrictions.
 
Originally Posted By: maverickfhs
As the title suggests, have already changed things on my end and will be maxing out on 401K and HSA account contributions.

Looking for a roth IRA(or should I go for traditional?) option, is there anything else I can do for a sound financial choice while lowering taxes?

Thanks for all the advice and help
thumbsup2.gif



I would suggest a Roth IRA - when you say you maxed out your 401k are you talking pre-tax, post tax or Roth 401k? IRS allows up to $18.5k pre-tax and $55k total for 2018. So the difference would allow $37k in post tax/Roth investments.
 
Originally Posted By: Brybo86
100% Roth over traditional.
Pay a 25% tax on 200k in contributions -Roth
Pay a 15% tax on 1 million+ in growth in 30 years-trad

Roth 50k in taxes vs trad 150k taxes

Also if you are maxing 401k/hsa/trad ira your RMD at age 85 is going to be mind-boggling like many hundred thousands of dollars.

I would do Roth, no RMD , ever.
Tax free GROWTH, which is going to be the vast majority of the accounts value


Not saying your incorrect but my math worked out differently. You will pay a lot more in taxes in retirement but the idea is that since you aren't paying taxes up front you can invest more, so assuming everything is equal then you will have more money to begin with. So yes you are paying more taxes at the end, but avoiding the taxes up front it all comes out in the wash.

What I found makes a huge difference is that a lot of people have their retirement planned out to only pull out so much per year so they aren't in a higher tax bracket. When something goes wrong (medical), you want to buy a house, start a business, etc. then large withdrawals puts you in a really high tax bracket negating some savings (a lot depending on withdrawal amount) by doing pre-tax to begin with.
 
Originally Posted By: SVTCobra
Originally Posted By: maverickfhs
As the title suggests, have already changed things on my end and will be maxing out on 401K and HSA account contributions.

Looking for a roth IRA(or should I go for traditional?) option, is there anything else I can do for a sound financial choice while lowering taxes?

Thanks for all the advice and help
thumbsup2.gif



I would suggest a Roth IRA - when you say you maxed out your 401k are you talking pre-tax, post tax or Roth 401k? IRS allows up to $18.5k pre-tax and $55k total for 2018. So the difference would allow $37k in post tax/Roth investments.


Talking about Pre-Tax.
 
Originally Posted By: Brybo86
100% Roth over traditional.
Pay a 25% tax on 200k in contributions -Roth
Pay a 15% tax on 1 million+ in growth in 30 years-trad

Roth 50k in taxes vs trad 150k taxes

Also if you are maxing 401k/hsa/trad ira your RMD at age 85 is going to be mind-boggling like many hundred thousands of dollars.

I would do Roth, no RMD , ever.
Tax free GROWTH, which is going to be the vast majority of the accounts value


It is for this reason why Roth is usually a better option than Traditional for most people. Also, with Roth you can take our your principal penalty free, where you can't do that with traditional. That said, if your company does a match for a 401k or 403b then those usually go into traditional IRA type accounts. In that case, put in whatever you can up to their match amount (never turn free money) and put any extra into the Roth.
 
You should have probably been putting money in a ROTH for years too much money in retirement is not a bad thing. We've had ROTH's since what now 1990 something. The Government hasn't kept up with the times the Max ROTH contribution should be at least 12K a year now but the Government is to greedy to turn loose of that tax money. Social Security isn't going to be around for ever they keep robbing it and just giving it away. As for enough money in retirement I never touched my 401K until the Government made me take my forced distribution. I have never tapped my Roth but its there for a rainy day and building tax free.
 
Originally Posted By: SVTCobra
Originally Posted By: Brybo86
100% Roth over traditional.
Pay a 25% tax on 200k in contributions -Roth
Pay a 15% tax on 1 million+ in growth in 30 years-trad

Roth 50k in taxes vs trad 150k taxes

Also if you are maxing 401k/hsa/trad ira your RMD at age 85 is going to be mind-boggling like many hundred thousands of dollars.

I would do Roth, no RMD , ever.
Tax free GROWTH, which is going to be the vast majority of the accounts value


Not saying your incorrect but my math worked out differently. You will pay a lot more in taxes in retirement but the idea is that since you aren't paying taxes up front you can invest more, so assuming everything is equal then you will have more money to begin with. So yes you are paying more taxes at the end, but avoiding the taxes up front it all comes out in the wash.

What I found makes a huge difference is that a lot of people have their retirement planned out to only pull out so much per year so they aren't in a higher tax bracket. When something goes wrong (medical), you want to buy a house, start a business, etc. then large withdrawals puts you in a really high tax bracket negating some savings (a lot depending on withdrawal amount) by doing pre-tax to begin with.

You would need to add a lot more to pre tax to equal Roth.
Basically 25%, or your tax rate.
Unless you actually do that investing in Roth is essentially like investing 25% more money
 
Status
Not open for further replies.
Back
Top