Why financial advisors try to brainwash you into thinking that tax rate will go up in the future and touting the idea that you should pour money in Roth IRA now when the tax rate is low? I believe most of us don't really have a low tax rate right now. If the tax rate goes down when you retire, you paid more than you have to. Even though tax rate goes higher when you retire, you won't work and won't have income so your marginal tax rate should be 0. So when take 401K distribution, you are taxed at a very low rate. So why pay tax now when your tax rate is high? It makes more sense to defer paying tax when you retire and don't have income, doesn't it?
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Yes it’s a scam. Please place your money in a high yield savings account. You know because it’s high yield and you’re saving.
Your Citibank savings is a bigger scam.
No it’s really the best. Almost as good as windows and IE.
Are you eligible for regular IRA? Also when you retire you’ll take money out of 401k and IRA which will be taxable. Also if you have non retirement investments such as stocks that’ll be taxable.
Right, all your investments will be taxed as long term capital gain rate, which is much lower than our current income tax rate. So why bother putting the money into Roth and take a cut of the tax at your current high income tax rate upfront when you can enjoy lower tax rate when you retire? Also, after paying tax on Roth, your principal will be less so the growth will also be less compared to 401K's pretax principal, right?
Long term cap g can go to 90% in the future and it happened in the past too. The future is uncertain
It’s either taxed now or taxed later, upon withdrawal. Effectively you have the option of when to pay. Assuming a fixed tax rate they are roughly equivalent (actually Roth is slightly better from a taxation perspective due to dividend distributions). For most people though, they expect their tax rate to go up, so it makes sense to pay taxes now at a lower rate. Your income/tax rate isn’t 0 in retirement either.
The best tax loophole available is a "scam" eh? Haha. Also yes tax rates are historically low right now and the gov is in massive debt, rates will have to rise and loopholes (like the backdoor roth) will have to be closed at some point. Milk the Roth while you can, tax free money is the best!
You’re assuming that only income taxes will go up while property, sales, and excise taxes won’t. If the opposite happens, Roth may not be so great...
Pretty safe assumption but sure let's say income drops and sales tax triples. How does that make decades of tax free investment growth any less attractive or is even related to sales tax?
Depends on situation, you outline a very specific one of of not earning money when retired. There are people that will have earnings from rentals and dividend, as well as other sources if they so choose. The other part is that it's an additional vehicle for tax sheltering, doesn't matter if it gets taxed because my regular money gets taxed anyways without the benefit of tax free growth/withdrawal. The choice of 401k instead of Roth 401k has a few percentage difference is returns. The madfientist does a breakdown of this if you're scheduling out 401k with no other taxable income as well as other scenarios. https://www.madfientist.com/traditional-ira-vs-roth-ira/
Thanks for explaination. If I ever get that rich to own multiple properties to have rental income and considerable amount of dividends, I probably won't even mind paying negligible amount of 401K tax then.
You're on Blind and work for the most valuable company in the world. it's not if, it's when for you lol. It's also knowing about the audience you're speaking to. Well off techies are the ones likely to try to find and diversify tax sheltered vehicles because they have the extra income.
Reading this thread makes me feel ever better about my long term prospects in IB. You guys are financially illiterate. Better get some decent advice before the next recession hits. Oh wait, good advice starts at $1million aum. Lol.
Sounds like a total dick. in finance. makes sense lol. Seriously, why not help people instead making snide comments? Edit: saw that you at least tried to help on the 22yo investing thread =) it's helpful for the people that needs help. Making people feel bad about asking questions can cause people to stop asking questions (think about kids in school that gets told they asked a stupid question by their teacher and classmates).
Ive posted plenty of great investment advice. Problem is most of you are too busy smelling your own farts and believing this collective nonsense to listen. History repeats itself in the markets. Not hypothetically but empirically. But I suppose I could believe “it’s differ t this time” but my farts don’t smell as good as yours :)
It's situation-dependent, of course. If your current and retired marginal rates are the same, Roth and Traditional are equivalent. There are many factors that can cause your future tax rate to be higher, though - • Early in career • Significant inheritance • Political climate (current rates historically low) • Current lack of state income tax (Washington) Additionally, the Roth backdoor allows you to save more sheltered dollars than just the front door, and Roth is better than unsheltered. Even if you expect it to be close and not necessarily higher in the future, making a mixture of contributions hedges your bets.
If you're able to save and have enough foresight, saving Roth when you're still a student locks in near-zero tax rates and give maximum time for compound interest. I tell interns to take advantage of that as much as they can. Once you're a full time engineer, you're generally in an upper bracket, so the potential benefit is much narrower.
Short $TSLA Long $ROPE
Yeah okay dude I don’t need to sell a Roth IRA to you. If you think it’s bullshit, then don’t use it. Meanwhile I’ll add $5600 each year with the comfort of tax-free earnings growth, while at the same time contributing the max to my 401(k). Then at retirement I’ll find the right mix of taxable / non-taxable accounts to draw from so that I can spend as little on tax as I can.
Your earnings go untaxed. It's not a scam, but part of a diverse financial strategy.
But when your principal is taxed now you'll have less amount to invest, hence the earning will also be less, right?
It's about the timespan. Look up a Roth IRA calculator, the math will prove itself.