Deleted
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Post by Deleted on Jul 28, 2015 7:36:21 GMT -5
Ahhhhhhhhhh! Why do I torture myself listening to this stuff. I love the inspirational stories and the getting out of debt advice, then he hits an investment topic and I lose it. I get so mad. Today listening to a woman calling in concerned about switching her and her husband's 401K over to a Roth 401K to follow Dave because they are high income and it's a 34K deduction. He went off on this big thing telling them how much money that Roth would be worth in 15 years (over a million) and how 900K of that would be earnings. Then he showed how much of a cut that would take if it was in a traditional and asked her "For the same investment amount per month you can have that tax free, what would you prefer?" HE TOTALLY IGNORED ALL THE EXTRA TAXES THEY WOULD BE PAYING FOR THAT 15 YEARS!!! Never factored it into the equation at all! Assuming they're in the 25% tax bracket, that's $8500/year. More if they have a state tax too. It costs a lot more to invest in a Roth, it's not the same! ![](http://syonidv.hodginsmedia.com/vsmileys/headbang.gif)
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TheHaitian
Senior Associate
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Post by TheHaitian on Jul 28, 2015 7:56:30 GMT -5
Ahhhhhhhhhh! Why do I torture myself listening to this stuff. I love the inspirational stories and the getting out of debt advice, then he hits an investment topic and I lose it. I get so mad. Today listening to a woman calling in concerned about switching her and her husband's 401K over to a Roth 401K to follow Dave because they are high income and it's a 34K deduction. He went off on this big thing telling them how much money that Roth would be worth in 15 years (over a million) and how 900K of that would be earnings. Then he showed how much of a cut that would take if it was in a traditional and asked her "For the same investment amount per month you can have that tax free, what would you prefer?" HE TOTALLY IGNORED ALL THE EXTRA TAXES THEY WOULD BE PAYING FOR THAT 15 YEARS!!! Never factored it into the equation at all! Assuming they're in the 25% tax bracket, that's $8500/year. More if they have a state tax too. It costs a lot more to invest in a Roth, it's not the same! ![](http://syonidv.hodginsmedia.com/vsmileys/headbang.gif) Priceless
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Deleted
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Post by Deleted on Jul 28, 2015 8:34:23 GMT -5
Today listening to a woman calling in concerned about switching her and her husband's 401K over to a Roth 401K to follow Dave because they are high income and it's a 34K deduction. He went off on this big thing telling them how much money that Roth would be worth in 15 years (over a million) and how 900K of that would be earnings. Then he showed how much of a cut that would take if it was in a traditional and asked her "For the same investment amount per month you can have that tax free, what would you prefer?" HE TOTALLY IGNORED ALL THE EXTRA TAXES THEY WOULD BE PAYING FOR THAT 15 YEARS!!! Never factored it into the equation at all! Assuming they're in the 25% tax bracket, that's $8500/year. More if they have a state tax too. It costs a lot more to invest in a Roth, it's not the same! ![](http://syonidv.hodginsmedia.com/vsmileys/headbang.gif) Doesn't the Roth work the other way around? When you convert from a regular 401(k) to a Roth it's an increase to your taxable income because the money that went into your 401(k) wasn't taxed when it went in. The major advantage of a Roth is that when it comes out it's not taxed. That's huge, especially if it's been in there a long time. Anything coming out of a 401(k) is taxed as ordinary income, even if it came from dividends or long-term gains.
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TheHaitian
Senior Associate
Joined: Jul 27, 2014 19:39:10 GMT -5
Posts: 10,144
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Post by TheHaitian on Jul 28, 2015 8:38:08 GMT -5
Today listening to a woman calling in concerned about switching her and her husband's 401K over to a Roth 401K to follow Dave because they are high income and it's a 34K deduction. He went off on this big thing telling them how much money that Roth would be worth in 15 years (over a million) and how 900K of that would be earnings. Then he showed how much of a cut that would take if it was in a traditional and asked her "For the same investment amount per month you can have that tax free, what would you prefer?" HE TOTALLY IGNORED ALL THE EXTRA TAXES THEY WOULD BE PAYING FOR THAT 15 YEARS!!! Never factored it into the equation at all! Assuming they're in the 25% tax bracket, that's $8500/year. More if they have a state tax too. It costs a lot more to invest in a Roth, it's not the same! ![](http://syonidv.hodginsmedia.com/vsmileys/headbang.gif) Doesn't the Roth work the other way around? When you convert from a regular 401(k) to a Roth it's an increase to your taxable income because the money that went into your 401(k) wasn't taxed when it went in. The major advantage of a Roth is that when it comes out it's not taxed. That's huge, especially if it's been in there a long time. Anything coming out of a 401(k) is taxed as ordinary income, even if it came from dividends or long-term gains. I think what happens was Dave said that : 1 Million in ROTH is better because it is not taxed vs 1 Million in 401k that will be taxed But ROTH gains/profits are not taxed, the money you put on there was taxed. While the 401k was never taxed going in, you are now paying taxes on investment + gains when you withdraw it. Dave was not taking into consideration the taxes they will pay on that 36k they put in a ROTH 401k vs not paying taxes on the 36k if it went into a traditional 401k.
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Deleted
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Post by Deleted on Jul 28, 2015 8:39:28 GMT -5
Today listening to a woman calling in concerned about switching her and her husband's 401K over to a Roth 401K to follow Dave because they are high income and it's a 34K deduction. He went off on this big thing telling them how much money that Roth would be worth in 15 years (over a million) and how 900K of that would be earnings. Then he showed how much of a cut that would take if it was in a traditional and asked her "For the same investment amount per month you can have that tax free, what would you prefer?" HE TOTALLY IGNORED ALL THE EXTRA TAXES THEY WOULD BE PAYING FOR THAT 15 YEARS!!! Never factored it into the equation at all! Assuming they're in the 25% tax bracket, that's $8500/year. More if they have a state tax too. It costs a lot more to invest in a Roth, it's not the same! ![](http://syonidv.hodginsmedia.com/vsmileys/headbang.gif) Doesn't the Roth work the other way around? When you convert from a regular 401(k) to a Roth it's an increase to your taxable income because the money that went into your 401(k) wasn't taxed when it went in. The major advantage of a Roth is that when it comes out it's not taxed. That's huge, especially if it's been in there a long time. Anything coming out of a 401(k) is taxed as ordinary income, even if it came from dividends or long-term gains. They weren't talking about converting. Just switching future contributions from Traditional to Roth. Yes, you don't pay taxes coming out, but you can't ignore the tax savings by going traditional either. In fact, if you invest the tax savings in the same investment, the end result is identical. Putting 34K in a Roth 401K actually costs them $43,500. It's not the "same" investment that Dave is saying. I go all traditional with my 401K and use the tax savings to fund my Roth.
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Deleted
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Post by Deleted on Jul 28, 2015 9:25:11 GMT -5
They weren't talking about converting. Just switching future contributions from Traditional to Roth. OK, I get it and I agree with your statement that DR ignored some major tax consequences.
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Deleted
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Post by Deleted on Jul 28, 2015 9:55:02 GMT -5
DR really needs to stick to getting outta debt IMO, there are reasons for SOME people to go Roth 401k:
1. You have low income now, meaning you can contribute to he Roth paying taxes at a low rate.
2. You anticipate your income increases in retirement with pensions or other income.
The more I read the more I am convinced traditional is the better deal for most people, I still think getting to a 50/50 Roth/Traditional mix is the right call for my family situation.
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Deleted
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Post by Deleted on Jul 30, 2015 11:36:18 GMT -5
Today he's saying any moron can find a fund that outperforms the stock market...it's not that hard. All you have to do is look at their performance charts and pick one that does!
And here I was always told that past performance does not predict the future. It apparently does as long as you pick one that has at least a 10 year rating over the market.
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Deleted
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Post by Deleted on Aug 3, 2015 11:02:41 GMT -5
Bad investment advice for today. Guy called in and said he had 19K left in his 529 plan and his Masters degree is being covered by the military. He wants to transfer the 529 to his kids since he doesn't need it. Dave said you can't do that and advised him to spend it down on whatever he could for himself or he was going to get taxed to death. Uh..you most certainly can change the beneficiary on a 529 plan! Plus, the military paying for his Masters is considered a scholarship and he can withdraw up to that amount as a qualified expense with no taxes/penalty.
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emma1420
Senior Member
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Post by emma1420 on Aug 3, 2015 11:40:14 GMT -5
DR really needs to stick to getting outta debt IMO, there are reasons for SOME people to go Roth 401k: 1. You have low income now, meaning you can contribute to he Roth paying taxes at a low rate. 2. You anticipate your income increases in retirement with pensions or other income. The more I read the more I am convinced traditional is the better deal for most people, I still think getting to a 50/50 Roth/Traditional mix is the right call for my family situation. The CEO where I work loves Roth 401Ks and pushes them whenever the company handling our 401K sends a rep to talk about our choices. A Roth 401K is great if you think you will be in a higher tax bracket during retirement that you will while you are working, but for most people I don't think it makes a lot of sense. And, at least for me it's far less painful to contribute to my 401K pretax.
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lynnerself
Senior Member
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Post by lynnerself on Aug 3, 2015 14:27:45 GMT -5
I switched to all Roth 401k contributions my last few years of work. It looked like we would be in a similar tax bracket in retirement. But mostly I wanted to balance the amount I had in tax deferred accounts. And to avoid huge RMDs later. But yes, the tax hit those last working years was pretty depressing.
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endofera
Junior Member
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Post by endofera on Aug 3, 2015 20:42:08 GMT -5
HE TOTALLY IGNORED ALL THE EXTRA TAXES THEY WOULD BE PAYING FOR THAT 15 YEARS!!! Never factored it into the equation at all! Assuming they're in the 25% tax bracket, that's $8500/year. More if they have a state tax too. It costs a lot more to invest in a Roth, it's not the same! ![](http://syonidv.hodginsmedia.com/vsmileys/headbang.gif) I listen to Dave's podcasts all the time too, and he often makes this argument, but I've never really worked it out. I think it is a wash. His point is:$34k/year for 20 years into retirement = $680,000 According to my Phil Script, a yearly investment of $34,000.00 bearing an annual return of 11% could grow to $2,423,014.89 in 20 years! So you invest $680k and it grows to $2.4 MIL. 401K - all $2.4 MIL is eventually all taxable. Roth - only your contributions of $680k is ever taxed. $1.72 MIL of tax free growth. Always an impressive point that Dave makes. Your point is that to invest $34k pre-tax it's equivalent to investing $25.5k post tax. (The other 8.5k is going to taxes) According to my Phil Script, a yearly investment of $25,500.00 bearing an annual return of 11% could grow to $1,817,261.16 in 20 years! You withdraw $1.87MIL tax free versus $2.4MIL taxed @ 25% = $600k. $2.4MIL-600k = $1.8MIL about the same.
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