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Originally Posted by ChiliConCarnage
Good reminder, kicked off 2025 IRA contribution from my bank.
I do. I contribute actively to both Roth and traditional through my company 401k plan as well. I know some people try to work out exactly which is best for them but it takes a lot of assumptions about taxes and your life decades into the future so I use both a bit. Plus, knowing myself, I'll hate pulling out money once I have little to no income. Not owing taxes on some of it may help it not hurt so bad.
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Quote:
Originally Posted by DaFace
I do ROTH primarily but my trad is a dumping ground for all of my orphaned 401ks. I find the idea of predicting future income in retirement to be pretty ambiguous, so I figure having a blend will give me a little flexibility.
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For the record if you're talking about me, I'm not necessarily leaning on predicting income tax liability in retirement. I did the math to end of life using todays tax code, but that's not where the crux of the decision making is.
The basis of the decision landed on the idea of taking the tax savings from the pre-tax contributions (into a qualified plan, so the limits are higher and worthwhile) which, when I calculated them were more substantial than I'd anticipated, and investing them into a taxable brokerage account. The math is fairly complicated following all the different components through over time, but it's pretty sizable, even at modest compounding returns.
You have to know what you're signing on for, even in a buy and hold situation (which I'm doing). Even things like VOO have close to a 1% dividend, which is taxable, and those taxes have to be accounted for in the return calculation as well as cash flow to pay the taxes.
You also have to have the discipline to transfer the money into a brokerage. I've been doing well doing it, but it's definitely a consideration. If you don't get it in there, you've wasted the tax savings. I haven't done the math on making sure I'm getting it all in there, but I think I am. Cost efficiency is a big thing.
I'm not whole hog. Basically I'm putting my stuff in pre-tax and the wife's in as ROTH as a hedge against uber high tax rates in retirements (which looking at the national debt and associated budget deficits, is a real risk. However, getting a compounding return in play is hard for me to believe taxes efficiency is going to outperform compounding returns. After I file my return I'm going to take a hard look at moving at least some of the wife's contributions to pre-tax.
It adds complication and required management and cash flow for tax on the brokerage account, but in my specific case the math was compelling.
Hopefully I don't derail Virus' discussion.
tl;dr: Buehler445 is a nerd.