Good video, But confused as description mentions IRAs but you tall about 401ks. Do these apply to IRAs that you would get outside of a company 401 plan?
The ability to claim the deductible for a traditional IRA is phased out at a certain income starting from 77k and fully phased out at 87k. So if you are a higher earner the choice for IRA is made for you, you do Roth. But there are no income limits for 401k so the Roth vs Traditional conversation is important.
Key is to NOT do a ROTH conversion (if ever) during high income years-even in semi retirement. That’s my situation. But I do like the gradual tax bracket bucket 🪣 “fill-up” approach when it does come time prior to RMDs. 👌🏼
Yeah I would say mostly true. There's times where it can make sense depending on situation, but goal is to convert and fill up lower brackets for sure.
I'm a Union worker (pension provided). My employer doesn't offer 401k whatsoever. Is it possible to have pre tax income withdrawn into a 401k regardless of lack of company offer or match?
It is not. It is a company sponsored retirement plan so needs to be offered. You could use a Roth IRA or Traditional IRA depending on your income as they have income limits.
I think traditional is still valid for 22/24% brackets, 90% of people will never see the 32%+ brackets. Federal Marginal vs effective on 100k is 22% vs 13.84%. The arbitrage is smaller for 12%, example $61,750 marginal rate is 12% vs 8.79% effective. I don't think taxes will go up enough to overtake that 8% but could be enough to overtake 3%. Though state tax arbitrage could still make it valid but you have to be pretty confident you will retire in a no income tax state and will work in a high income tax state.
I try to explain this stuff to my wife and my coworkers and they get a glazed over look in their eyes. Most people dont want to think about this. The tax code is not intuitive nor are sound wealth building management. I guess thats why asset managers and tax experts make a good living. I tell people most of the wisdom they need os free on the internet or in an affordable book but that sounds like too much work for them so they're willing to just live their life and see what happens. I told my mother about RMDs and she was clueless. Come on, Mom, spend that money or you'll be making a donation to the government!
@@stoobpendous yeah you’re right. So few understand tax planning. Most financial advisors don’t even touch it. Those places, like my company, where tax planning is front and center have a waitlist of people trying to work with us for a reason
Hey, pro tip for ya. It’s actually not as simple as comparing current vs future tax brackets. The math doesn’t actually work that way. Your retirement tax rate must actually be substantially lower in order to get an equivalent return to a Roth. Generally even high income tax bracket individuals should be doing Roth when available. There are few exceptions to this. The historical challenge with advisors is that the full math is difficult, so they adopted a rule of thumb that has turned out to be mostly wrong for most people.
That’s just not true. You defer now at a marginal rate and you withdraw in the future at an effective rate. And this is also leaving out Roth conversions in early retirement pre an rmds, social security, etc where you have a lot of room. We do it for tons of clients.
Awesome Break Downs!
Thank you!
Good video, But confused as description mentions IRAs but you tall about 401ks. Do these apply to IRAs that you would get outside of a company 401 plan?
Totally understand what you are saying. Both work the same tax wise. its more so about Roth vs traditional.
The ability to claim the deductible for a traditional IRA is phased out at a certain income starting from 77k and fully phased out at 87k. So if you are a higher earner the choice for IRA is made for you, you do Roth. But there are no income limits for 401k so the Roth vs Traditional conversation is important.
Key is to NOT do a ROTH conversion (if ever) during high income years-even in semi retirement. That’s my situation. But I do like the gradual tax bracket bucket 🪣 “fill-up” approach when it does come time prior to RMDs. 👌🏼
Yeah I would say mostly true. There's times where it can make sense depending on situation, but goal is to convert and fill up lower brackets for sure.
I'm a Union worker (pension provided). My employer doesn't offer 401k whatsoever. Is it possible to have pre tax income withdrawn into a 401k regardless of lack of company offer or match?
It is not. It is a company sponsored retirement plan so needs to be offered. You could use a Roth IRA or Traditional IRA depending on your income as they have income limits.
Does your employer have a 403b or 457b option?
@@mandypdxthat’s a good question for him. He could have a Roth 403b
I think traditional is still valid for 22/24% brackets, 90% of people will never see the 32%+ brackets. Federal Marginal vs effective on 100k is 22% vs 13.84%. The arbitrage is smaller for 12%, example $61,750 marginal rate is 12% vs 8.79% effective. I don't think taxes will go up enough to overtake that 8% but could be enough to overtake 3%. Though state tax arbitrage could still make it valid but you have to be pretty confident you will retire in a no income tax state and will work in a high income tax state.
@@JustSomeRandomGuyYo could definitely be true. But it depends on age, if they’re gonna grow their income in the future, etc
I try to explain this stuff to my wife and my coworkers and they get a glazed over look in their eyes. Most people dont want to think about this. The tax code is not intuitive nor are sound wealth building management.
I guess thats why asset managers and tax experts make a good living.
I tell people most of the wisdom they need os free on the internet or in an affordable book but that sounds like too much work for them so they're willing to just live their life and see what happens.
I told my mother about RMDs and she was clueless. Come on, Mom, spend that money or you'll be making a donation to the government!
@@stoobpendous yeah you’re right. So few understand tax planning. Most financial advisors don’t even touch it.
Those places, like my company, where tax planning is front and center have a waitlist of people trying to work with us for a reason
Hey, pro tip for ya. It’s actually not as simple as comparing current vs future tax brackets. The math doesn’t actually work that way. Your retirement tax rate must actually be substantially lower in order to get an equivalent return to a Roth. Generally even high income tax bracket individuals should be doing Roth when available. There are few exceptions to this. The historical challenge with advisors is that the full math is difficult, so they adopted a rule of thumb that has turned out to be mostly wrong for most people.
That’s just not true. You defer now at a marginal rate and you withdraw in the future at an effective rate. And this is also leaving out Roth conversions in early retirement pre an rmds, social security, etc where you have a lot of room. We do it for tons of clients.
You need to work on the haircut