Another Retirement Savings Question. Sorry!

[Deleted]

I have been increasing my retirement savings over the last few years. I am currently saving 20% of my gross, 5% of that is going to a Roth option that I just started contributing to at the end of last year. I get another 5% added to my account through my employer match.

Due to recent increases in pay, I want to increase my contribution again. I am 50yo, so eligible for catch up contributions if I max out regular contributions. I don’t fully understand Roth’s, I just know that they are funded with after tax money, which means I won’t have to pay taxes when I need to use that money, unlike my other contributions that are pre tax. Feel free to correct me or educate me on Roth’s. I honestly get easily overwhelmed with retirement planning.

If I bump up my contributions another 5%, should it go to my pretax retirement savings or the Roth option? I have a LOT more pretax savings vs after tax. Or should I put it somewhere else altogether? If somewhere else is best, it would help if advice on that includes exactly where would be a better place. 

I should be eligible to retire in about 8 years, and it will not be a moment too soon. I am trying now to do whatever I can, within reason and without making myself miserable in the process, to be able to retire ASAP.

Please advise. Thank you in advance!

[Rukh O'Rorke]

where to put more money depends on the balances in each pot, and your expected taxes in retirement.

since you just started with roth, you should likely beef it up. roth doesn't trigger any income so can be used in a lot of ways to reduce your tax burden and keep your taxable income lower for ACA subsidies , etc.

[Deleted]

I just want to also say that, while I have learned so much from you all, I am also kind of proud of myself. I have not done everything right, and should have a lot more money saved than I do, BUT I’m glad that I do have some. Before I even had financial issues, I had enough sense to not turn down free money from an employer. I didn’t even do that at my previous employer. 

My current employer, when I learned they would match my retirement savings up to 5% of my salary, it was a no brainer for me. I could get more money from them just because I was saving money, YES! Retirement seemed like a hundred years away, but I was all for getting some “free” money lol. Now that I’m trying to figure out how I can retire sooner, rather than later, wanting that “free” money and getting it, is something I’m grateful for.

I just struggle trying to figure out the details lol.

[jerseygirl]

Great that you’re doing a Roth. We only used traditional 401k/IRA and now that we must take required minimum deductions (RMDs) unfortunately must pay taxes on these. The RMDs are more than we need or spend but have no choice we must withdraw them and pay taxes. So about 25% of our retirement savings are going to taxes every year. With a Roth you don’t need RMDs so only withdraw what you need and no taxes. Big advantage!!

[Deleted]

Mar 4, 2022 20:49:33 GMT -5 jerseygirl said:

Great that you’re doing a Roth. We only used traditional 401k/IRA and now that we must take required minimum deductions (RMDs) unfortunately must pay taxes on these. The RMDs are more than we need or spend but have no choice we must withdraw them and pay taxes. So about 25% of our retirement savings are going to taxes every year. With a Roth you don’t need RMDs so only withdraw what you need and no taxes. Big advantage!!

I feel stupid for asking, but whatever…….. Will I have RMDs at some point regardless, for my account that is similar to a 401k? For me, it’s TSP, instead of a 401k.

If so, will that not just be whatever it is, whether I have a Roth or not? I am only calculating with my money, not mine and Mister’s. 25% sounds like a lot.

I already feel some type of way, putting myself out there asking what sounds like dumb questions to me, but I really need to figure this stuff out.

[jerseygirl]

Yes the TSP will be taxed when withdrawn , you don’t pay taxes on the amount you put in now. The government wants its ‘fair share’ so you must pay taxes on the required RMDs from the TSP. Might not be 25% but might be more since the government is spending more and more on healthcare, social security, child tax refunds etc etc . Where will they get that money?? Most people who are savers will end up with a nice amount in their retirement accounts. Like Jimmy Hoffa said - I rob banks cause that’s where the money is, or in this case the money’s in the retirement accounts.

So a Roth contribution already has been taxed snd any withdrawals are tax free and you aren’t required to withdraw money unless you want.

[Opti]

Not a retirement answer, but if the federal govt did not feel the need to spend 53% of every dollar on the military, I think we'd have the money without raising taxes.

(I have lots to learn on retirement stuff, so carry on.)

[jerseygirl]

Mar 4, 2022 23:07:05 GMT -5 Opti said:

Not a retirement answer, but if the federal govt did not feel the need to spend 53% of every dollar on the military, I think we'd have the money without raising taxes.

(I have lots to learn on retirement stuff, so carry on.)

Federal government spending about 50 - 60% on SS Medicare etc not military. US spends about 15% on its military , see link

www.federalbudgetinpictures.com/where-does-all-the-money-go/

[tallguy]

Mar 4, 2022 22:59:32 GMT -5 jerseygirl said:

Yes the TSP will be taxed when withdrawn , you don’t pay taxes on the amount you put in now. The government wants its ‘fair share’ so you must pay taxes on the required RMDs from the TSP. Might not be 25% but might be more since the government is spending more and more on healthcare, social security, child tax refunds etc etc . Where will they get that money?? Most people who are savers will end up with a nice amount in their retirement accounts. Like Jimmy Hoffa said - I rob banks cause that’s where the money is, or in this case the money’s in the retirement accounts.

So a Roth contribution already has been taxed snd any withdrawals are tax free and you aren’t required to withdraw money unless you want.

  Willie Sutton, reportedly.  Jimmy Hoffa was a former Teamsters boss who was also affiliated with organized crime, or the Mafia. 

[Opti]

Mar 4, 2022 23:21:27 GMT -5 jerseygirl said:

Mar 4, 2022 23:07:05 GMT -5 Opti said:

Not a retirement answer, but if the federal govt did not feel the need to spend 53% of every dollar on the military, I think we'd have the money without raising taxes.

(I have lots to learn on retirement stuff, so carry on.)

Federal government spending about 50 - 60% on SS Medicare etc not military. US spends about 15% on its military , see link

www.federalbudgetinpictures.com/where-does-all-the-money-go/

Medicare and SS get funded out of taxes from workers' pay in every paycheck. I believe the 53% is from federal tax proceeds from taxpayers that are not Medicare and SS taxes. I also paid disability and other split out taxes on my paycheck which are considered more state-oriented taxes.

Compared to almost any first world country we spend more on military and less on the health of our people. We also average about 33 in world rankings on our citizen's health versus I think number one for our military compared to other countries.

[jerseygirl]

Mar 4, 2022 23:35:59 GMT -5 Opti said:

Mar 4, 2022 23:21:27 GMT -5 jerseygirl said:

Federal government spending about 50 - 60% on SS Medicare etc not military. US spends about 15% on its military , see link

www.federalbudgetinpictures.com/where-does-all-the-money-go/

Medicare and SS get funded out of taxes from workers' pay in every paycheck. I believe the 53% is from federal tax proceeds from taxpayers that are not Medicare and SS taxes. I also paid disability and other split out taxes on my paycheck which are considered more state-oriented taxes.

Compared to almost any first world country we spend more on military and less on the health of our people. We also average about 33 in world rankings on our citizen's health versus I think number one for our military compared to other countries.

Actually the US is 11th or last of the top industrial countries , but this doesn’t mean last in actual health. The scale includes things like access to care and administrative efficiency . Yes we have a crappy complex system but also many of the best hospitals in the world. The US does spend more on military than other countries . Some of that is because other countries don’t because they feel the US will provide for their defense. NATO members have an agreement that every NATO country should spend 2% of their GDP. Guess what - until very recently only the US spent this amount. The last administration threatened to pull out of NATO unless the countries started to pay their agreed upon amount. Well the other countries are now starting to pay their share instead of just relying on the US

www.washingtonpost.com/world/2021/08/05/global-health-rankings/

www.stripes.com/theaters/europe/ten-nato-members-now-meet-2-defense-spending-benchmark-but-not-germany-1.649349

[tallguy]

Mar 4, 2022 21:02:14 GMT -5 @pinkcshmere said:

Mar 4, 2022 20:49:33 GMT -5 jerseygirl said:

Great that you’re doing a Roth. We only used traditional 401k/IRA and now that we must take required minimum deductions (RMDs) unfortunately must pay taxes on these. The RMDs are more than we need or spend but have no choice we must withdraw them and pay taxes. So about 25% of our retirement savings are going to taxes every year. With a Roth you don’t need RMDs so only withdraw what you need and no taxes. Big advantage!!

I feel stupid for asking, but whatever…….. Will I have RMDs at some point regardless, for my account that is similar to a 401k? For me, it’s TSP, instead of a 401k.

If so, will that not just be whatever it is, whether I have a Roth or not? I am only calculating with my money, not mine and Mister’s. 25% sounds like a lot.

I already feel some type of way, putting myself out there asking what sounds like dumb questions to me, but I really need to figure this stuff out.

The real answer on whether to do Roth or not depends on what your current tax rate is compared to your projected tax rate in retirement.  That being said, my bias is toward the Roth, and I consider my Roth money to be the most important money I have.  It is very freeing to know that I can do whatever I want with it, taking as much or as little as I desire, and it will not affect taxes or anything else.  RMDs really become an issue for people with a lot of tax-deferred money in IRAs.  I talked with somebody whose RMDs will be around or over $200,000/year.  They don't want to take that much and the tax bill will be huge, but it is too late to avoid it.  I tried doing conversions to get my own traditional IRA balances lower, but due to other circumstances will not hit that goal.  I will still deal with RMDs but I am hopeful they will not become burdensome.  If you happen to end up with too much in the TSP (or an IRA if you roll it over) you can still do things like conversions later on.  Again, though, my bias is toward the Roth now if you can.

[Opti]

Mar 4, 2022 23:58:45 GMT -5 jerseygirl said:

Mar 4, 2022 23:35:59 GMT -5 Opti said:

Medicare and SS get funded out of taxes from workers' pay in every paycheck. I believe the 53% is from federal tax proceeds from taxpayers that are not Medicare and SS taxes. I also paid disability and other split out taxes on my paycheck which are considered more state-oriented taxes.

Compared to almost any first world country we spend more on military and less on the health of our people. We also average about 33 in world rankings on our citizen's health versus I think number one for our military compared to other countries.

Actually the US is 11th or last of the top industrial countries , but this doesn’t mean last in actual health. The scale includes things like access to care and administrative efficiency . Yes we have a crappy complex system but also many of the best hospitals in the world. The US does spend more on military than other countries . Some of that is because other countries don’t because they feel the US will provide for their defense. NATO members have an agreement that every NATO country should spend 2% of their GDP. Guess what - until very recently only the US spent this amount. The last administration threatened to pull out of NATO unless the countries started to pay their agreed upon amount. Well the other countries are now starting to pay their share instead of just relying on the US

www.washingtonpost.com/world/2021/08/05/global-health-rankings/

www.stripes.com/theaters/europe/ten-nato-members-now-meet-2-defense-spending-benchmark-but-not-germany-1.649349

Yes, things have changed on the military front and Trump did initially lower military costs by closing bases and getting countries to pay more to NATO. Notice how in this link, we've returned to a higher military spending "curve". The 2019 budget is not far off from the 2011 budget.


www.macrotrends.net/countries/USA/united-states/military-spending-defense-budget#:~:text=U.S.%20Military%20Spending%2FDefense%20Budget%20-%20Historical%20Data%20,%20%203.42%25%20%2056%20more%20rows%20

[Opti]

Mar 4, 2022 23:58:45 GMT -5 jerseygirl said:

Mar 4, 2022 23:35:59 GMT -5 Opti said:

Medicare and SS get funded out of taxes from workers' pay in every paycheck. I believe the 53% is from federal tax proceeds from taxpayers that are not Medicare and SS taxes. I also paid disability and other split out taxes on my paycheck which are considered more state-oriented taxes.

Compared to almost any first world country we spend more on military and less on the health of our people. We also average about 33 in world rankings on our citizen's health versus I think number one for our military compared to other countries.

Actually the US is 11th or last of the top industrial countries , but this doesn’t mean last in actual health. The scale includes things like access to care and administrative efficiency . Yes we have a crappy complex system but also many of the best hospitals in the world. The US does spend more on military than other countries . Some of that is because other countries don’t because they feel the US will provide for their defense. NATO members have an agreement that every NATO country should spend 2% of their GDP. Guess what - until very recently only the US spent this amount. The last administration threatened to pull out of NATO unless the countries started to pay their agreed upon amount. Well the other countries are now starting to pay their share instead of just relying on the US

www.washingtonpost.com/world/2021/08/05/global-health-rankings/

www.stripes.com/theaters/europe/ten-nato-members-now-meet-2-defense-spending-benchmark-but-not-germany-1.649349

Out of all countries, we often show up around 33rd in the world. Eleventh out of 11, isn't looking at a global picture. Apparently that study is popular enough I had to go to another page to get results I know that exist, because I've looked at this issue multiple times. One shows us at 29th for life expectancy. The US has some cool things including high end medical care. High end medical care in the US though really doesn't help the majority of the US citizens. And that is the problem.

[nidena]

@pinkcshmere, you never have to apologize for asking questions.  

[jerseygirl]

Opt yes the military budget $ is going back up in 2019 but the % of GDP is still down about 3%
Good that NATO countries now paying more. Wish the UN also made countries pay more, now the US pays much of the costs, about 20%

www.cfr.org/article/funding-united-nations-what-impact-do-us-contributions-have-un-agencies-and-programs?amp

[buystoys]

My bias is also towards the Roth.  You never know what life will throw at you and having access to those funds can make a big difference for you at some point in time.  DH and I both retired unexpectedly.  We were fortunate to have the taxable savings we had.  I did have to take some money out of my Roth a couple of years ago, but we've mostly been able to leave it alone. 

I also like that the Roth lets you "ignore" the tax rate at your time of retirement.  Taxes can always go up, so paying them now isn't a bad thing.  Of course, taxes could also go down, but I don't think any of us really expect that.

[minnesotapaintlady]

A lot of the Roth/Traditional decision is guessing, as nobody can be certain what their tax situation will be like in retirement so you're probably going to want some of both to hedge your bets, you are going to want pre-tax money to fill the standard deduction and the lower brackets anyhow.  Kind of crazy to pay taxes on Roth money only to use it to fill the standard deduction which would have been tax free anyhow.

I also don't like the "rules of thumb" that say if you're in a low tax bracket to go all Roth, you really need to evaluate your own situation.  I'm in the 10% bracket, but due to the way the tax credits work it would be crazy for me to go Roth in my 401K, instead I that tax savings I get going all traditional in my 401K into a Roth IRA.  I'm very heavy traditional...like 85% of my retirement savings, but for me this will be fine. I'm single, won't have a pension or other income, and SS will be tiny so I'm going to want to be withdrawing the RMD anyhow just to live.  I'm not concerned about leaving an inheritance and the RMDs won't make you broke.  If it's more than you need you don't have to spend it.  A million dollars would require a 36K RMD at 72.  Yeah, it keeps going up, but if at 86 I'm paying high taxes due to a 130K RMD I'll call it a win in my book.  

[teen persuasion]

Mar 4, 2022 21:02:14 GMT -5 @pinkcshmere said:

Mar 4, 2022 20:49:33 GMT -5 jerseygirl said:

Great that you’re doing a Roth. We only used traditional 401k/IRA and now that we must take required minimum deductions (RMDs) unfortunately must pay taxes on these. The RMDs are more than we need or spend but have no choice we must withdraw them and pay taxes. So about 25% of our retirement savings are going to taxes every year. With a Roth you don’t need RMDs so only withdraw what you need and no taxes. Big advantage!!

I feel stupid for asking, but whatever…….. Will I have RMDs at some point regardless, for my account that is similar to a 401k? For me, it’s TSP, instead of a 401k.

If so, will that not just be whatever it is, whether I have a Roth or not? I am only calculating with my money, not mine and Mister’s. 25% sounds like a lot.

I already feel some type of way, putting myself out there asking what sounds like dumb questions to me, but I really need to figure this stuff out.

Yes, your TSP will have RMDs just like a 401k or tIRA, beginning at age 72 (although you are free to take withdrawals before then, too). 


One gotcha to be aware of: Roth versions of 401k and other employer plans also have RMDs, but Roth IRAs do not.  There would be no tax due on a Roth RMD, but you want to leave Roth funds undisturbed as much as possible, right?

The way around this stupid rule: rollover your Roth TSP into a Roth IRA before age 72.  Yippee - no Roth RMDs now!

Next issue - do I remember correctly that you will have a pension?  If so, that's another vote for Roth.  Your pension income + SS income will fill up your lowest tax brackets before you even get to the RMD income.  The more money you tax defer today, the more that comes out later as taxable RMDs.

Try to guess at your fixed taxable income in retirement using current $ numbers: what's your pension income, and SS, in current $.  What tax bracket does that put you in?  Then add RMDs on top; what is 4% of your current TSP balance (exclude Roth portion)?  Compare it to your current tax bracket.  If your current tax bracket is higher than your retirement bracket, then Roth might not make sense.  But - brackets are scheduled to revert to higher rates in a few years, and your TSP balance should  hopefully grow much larger than current values between now and 72 (whereas pension and SS should track inflation bracket changes), so it's hard to predict future tax bracket rates.  If the tax brackets look similar or close, a tie goes to Roth.

Basic view: when is it better to get the tax break - now on the deferral, or in retirement on the withdrawal? Thus it depends on your top rate in either.

[teen persuasion]

Mar 5, 2022 8:31:43 GMT -5 minnesotapaintlady said:

A lot of the Roth/Traditional decision is guessing, as nobody can be certain what their tax situation will be like in retirement so you're probably going to want some of both to hedge your bets, you are going to want pre-tax money to fill the standard deduction and the lower brackets anyhow.  Kind of crazy to pay taxes on Roth money only to use it to fill the standard deduction which would have been tax free anyhow.

I also don't like the "rules of thumb" that say if you're in a low tax bracket to go all Roth, you really need to evaluate your own situation.  I'm in the 10% bracket, but due to the way the tax credits work it would be crazy for me to go Roth in my 401K, instead I that tax savings I get going all traditional in my 401K into a Roth IRA.  I'm very heavy traditional...like 85% of my retirement savings, but for me this will be fine. I'm single, won't have a pension or other income, and SS will be tiny so I'm going to want to be withdrawing the RMD anyhow just to live.  I'm not concerned about leaving an inheritance and the RMDs won't make you broke.  If it's more than you need you don't have to spend it.  A million dollars would require a 36K RMD at 72.  Yeah, it keeps going up, but if at 86 I'm paying high taxes due to a 130K RMD I'll call it a win in my book.  

I agree with the part I bolded.  Bracket is the wrong yardstick - it should be marginal tax rate instead.  I've been railing at Bogleheads that keep using the lazy tax bracket rule of thumb instead, because for them (high income, so already phased out of everything extra), marginal = bracket.  I have to walk them thru how I am in the 10% bracket, have a negative tax rate, but have a marginal rate approaching 50%.  They just hear "low income" and assume Roth all the way.  Nope, I can save MUCH more total by going all pre-tax with employer plans, get big refundable credits, put those in Roth IRAs.  Then, later, after kid credits have evaporated, we will be in a higher bracket but lower marginal rate, and have years to Roth convert before SS, and no pension pre-filling the lowest brackets.

[Deleted]

I would also vote for maxing the Roth.  It wasn't an option for me till well into my career- I made too much to do contributions on my own (or for DH, who was retired) so I had to wait till my employer offered it.   I'd gone for the "max out your 401(k) first because you're likely to be in a lower tax bracket when you retire" advice and now I'm not so sure that was a good idea.  Some years (it depends on the investment results) my AGI is higher than it was in my working years.  That triggers "stealth taxes"- I pay taxes on 85% of my SS and higher Medicare B and prescription plan premiums.  Given all the payments the gubmint has made due to COVID I expect tax rates to keep climbing.  And I haven't even started on RMDs since I'm 69.  That's gonna be a bloodbath.

I wasn't aware of the point teen persuasion made about RMDs on Roth 401(k)s but not Roth IRAs.  A rollover is easy- you can't do it now while you're with your current employer but when you retire you can go to a brokerage like Schwab or Fidelity and complete a rollover request.  They'll get the money from your employer plan and put it into a new Roth Rollover account.  (Believe me, they'll be motivated and happy to help! )  That does mean you need to learn about investing if you haven't already, but you can do something as simple as a mix of 3 or 4 ETFs, periodically rebalancing.

This is a VERY good time to be asking questions.  Between the calls BF gets in his job from Medicare beneficiaries and the comments I see on retirement-related posts on FB, there are a lot of really sad stories from people who DIDN'T ask questions in their working years and are struggling in retirement.

[azucena]

Good questions, pink. For me I'm trying to hedge my bets and spread my retirement buckets around as a way to manage taxes without getting too caught up in best breakdown.

Do you have an HSA? If so, that's another key bucket to fill - not taxed going in or coming out so advantages on both ends.

Teen - can you point me to info about Roth 401k having rmds? That new info for me. My employer just started offering post-tax investment option thru payroll into our fidelity account so I started that. Will it have different rules since it was employer based?

[geenamercile]

Pink good question. 

I struggle with where to put money too.  Right now I just save with no real retirement accounts.  I will have a pension that 5% of my pay goes into mandatory and the other 5% is paid by my job.  That will be 60% of my pay when I retire, it does have a COLA based in inflation.  I also will get SS as we still pay into it as well, and from what I have read because I pay FICA taxes there should not be an offset.  So right now everything just goes into savings. I am still pretty low on the tax bracket since I have the girls, but I figure once I can't claim them anymore I may really need to look at how to bring down my current taxable income.  I kind of like knowing I have access to the money now if needed, but at the same time worry that I may be screwing myself in the future.     

[teen persuasion]

Mar 5, 2022 9:18:01 GMT -5 azucena said:

Good questions, pink. For me I'm trying to hedge my bets and spread my retirement buckets around as a way to manage taxes without getting too caught up in best breakdown.

Do you have an HSA? If so, that's another key bucket to fill - not taxed going in or coming out so advantages on both ends.

Teen - can you point me to info about Roth 401k having rmds? That new info for me. My employer just started offering post-tax investment option thru payroll into our fidelity account so I started that. Will it have different rules since it was employer based?

Link from the IRS.

Reading that IRS page, all employer plans have RMDs, period.  TIRAs have RMDs, inherited accounts have RMDs (even Roth). Its only original owner Roth IRAs that have no RMDs.

Regarding your post-tax investment option - that's within your 401k, and not Roth, right? Does the plan have all the options to make it a mega backdoor Roth? And you are already maxing your pre-tax and/or Roth 401k contributions, first, so any post-tax contributions are additional, right?

It depends on how you do the MBR. If the rules let you roll the post-tax portion out to convert to Roth IRA, well, its now a Roth IRA. If the rules let you immediately convert the post-tax portion to Roth internally, then it's Roth 401k and stuck in the plan - you need to roll it over to Roth IRA when you leave that employer, or at least before age 72.

[minnesotapaintlady]

I'm also looking at retiring in about 6-8 years (hopefully 6) and have just started building up a cash reserve.  I figure if I can have a couple years' worth of expenses in cash/safe investments I will be able to weather some longer market downturns.  I'm especially concerned about the market being down early in retirement before I'm collecting SS.  I bonds have been where I've chosen to park that money. 

[teen persuasion]

Mar 5, 2022 9:22:02 GMT -5 geenamercile said:

Pink good question. 

I struggle with where to put money too.  Right now I just save with no real retirement accounts.  I will have a pension that 5% of my pay goes into mandatory and the other 5% is paid by my job.  That will be 60% of my pay when I retire, it does have a COLA based in inflation.  I also will get SS as we still pay into it as well, and from what I have read because I pay FICA taxes there should not be an offset.  So right now everything just goes into savings. I am still pretty low on the tax bracket since I have the girls, but I figure once I can't claim them anymore I may really need to look at how to bring down my current taxable income.  I kind of like knowing I have access to the money now if needed, but at the same time worry that I may be screwing myself in the future.     

Savings like bank accounts (earning little interest) or taxable accounts invested to outpace inflation?

Since you mentioned kids - assets like savings are included in FAFSA calculations for financial aid, but assets in retirement accounts like Roth IRAs are not included.  I'd always fund a Roth IRA before any kind of taxable account: contributions are always available for withdrawal (but not necessarily gains), growth and dividends are tax free inside the account, and all withdrawals are tax free after age 59.5 and the account has been open 5 years.

[Lizard Queen]

Mar 5, 2022 9:42:32 GMT -5 teen persuasion said:

Mar 5, 2022 9:18:01 GMT -5 azucena said:

Good questions, pink. For me I'm trying to hedge my bets and spread my retirement buckets around as a way to manage taxes without getting too caught up in best breakdown.

Do you have an HSA? If so, that's another key bucket to fill - not taxed going in or coming out so advantages on both ends.

Teen - can you point me to info about Roth 401k having rmds? That new info for me. My employer just started offering post-tax investment option thru payroll into our fidelity account so I started that. Will it have different rules since it was employer based?

Link from the IRS.

Reading that IRS page, all employer plans have RMDs, period.  TIRAs have RMDs, inherited accounts have RMDs (even Roth). Its only original owner Roth IRAs that have no RMDs.

Regarding your post-tax investment option - that's within your 401k, and not Roth, right? Does the plan have all the options to make it a mega backdoor Roth? And you are already maxing your pre-tax and/or Roth 401k contributions, first, so any post-tax contributions are additional, right?

It depends on how you do the MBR. If the rules let you roll the post-tax portion out to convert to Roth IRA, well, its now a Roth IRA. If the rules let you immediately convert the post-tax portion to Roth internally, then it's Roth 401k and stuck in the plan - you need to roll it over to Roth IRA when you leave that employer, or at least before age 72.

I have 457, pretax and post tax available from my employer. The post tax 457 is called a Roth, and has a $20,500 limit. On top of that, I get my own Roth with a $6000 limit through Fidelity, or I could just get a tira instead. (I'm ignoring the extra for over 50 to simplify.) Anyway, just trying to clarify. They are both Roth.

[minnesotapaintlady]

Mar 5, 2022 10:47:56 GMT -5 Lizard Queen said:

Mar 5, 2022 9:42:32 GMT -5 teen persuasion said:

Link from the IRS.

Reading that IRS page, all employer plans have RMDs, period.  TIRAs have RMDs, inherited accounts have RMDs (even Roth). Its only original owner Roth IRAs that have no RMDs.

Regarding your post-tax investment option - that's within your 401k, and not Roth, right? Does the plan have all the options to make it a mega backdoor Roth? And you are already maxing your pre-tax and/or Roth 401k contributions, first, so any post-tax contributions are additional, right?

It depends on how you do the MBR. If the rules let you roll the post-tax portion out to convert to Roth IRA, well, its now a Roth IRA. If the rules let you immediately convert the post-tax portion to Roth internally, then it's Roth 401k and stuck in the plan - you need to roll it over to Roth IRA when you leave that employer, or at least before age 72.

I have 457, pretax and post tax available from my employer. The post tax 457 is called a Roth, and has a $20,500 limit. On top of that, I get my own Roth with a $6000 limit through Fidelity, or I could just get a tira instead. (I'm ignoring the extra for over 50 to simplify.) Anyway, just trying to clarify. They are both Roth.

Some plans have post-tax options that aren't Roth though and they have much higher limits.  58K I believe.  

[Tiny]

Mar 4, 2022 20:20:28 GMT -5 @pinkcshmere said:

If I bump up my contributions another 5%, should it go to my pretax retirement savings or the Roth option? I have a LOT more pretax savings vs after tax. Or should I put it somewhere else altogether? If somewhere else is best, it would help if advice on that includes exactly where would be a better place. 

I should be eligible to retire in about 8 years, and it will not be a moment too soon. I am trying now to do whatever I can, within reason and without making myself miserable in the process, to be able to retire ASAP.

Please advise. Thank you in advance!

There isn't a one size fits all answer to this. It depends on your financial situation at retirement. It helps to think about HOW Roth money can be used once you are retired. And to think about HOW money in your regular old bank accounts (or taxable investment account) can be used once you are retired.

But, one example of how Roth money might be useful is Roth money can be used to manipulate your taxable income in retirement - as it's already been taxed. You would use X amount of taxable income and then if you need an additional amount for expenses and that amount pushes you into the next higher tax bracket (as in that additional amount would be taxed at the highest level for you ) you could use Roth money to avoid that happening. You could also use money from your savings or your taxable investment account. So it doesn't have to be from a Roth to accomplish the goal. It's a balancing act. This comes in handy if you are trying to stay in a particular tax bracket in retirement - or trying to maintain a particular income level for ACA benefits.

I will let you go down the rabbit hole of seeing how this fits into your retirement expenses and income.     Being 8 or 10 years from retirement is a good time to start learning about and figuring out where your income will come from in retirement and how those streams of income will play together.   This was "overwhelming" for me - so I kind of nibble at it  gathering information and figuring out how or if that info effects me (I'm single no kids - most retirement advice is for Marrieds with kids or Singles (who were previously married) with kids.)   Another thing is retirement advice is often either aimed at people who saved nothing OR who have saved millions of dollars.  If you are somewhere in between you have to look harder for info/advice that applies to you.   I wished I had asked "who is the target audience for what I am reading/hearing"  sooner...  I took the path for "double income, married, with kids" pretty much from day one in my retirement savings goals (it has served me well... but I wish I had built up more Roth and taxable savings during the early years - even if I was contributing dribs and drams to the accounts.)   

Here's my experience:
Back ground: I'm 58, I will not be working my high paying job much longer, I will receive a No COLA Pension at 65 (it's not great and it's not terrible) I will have SS and I have a large pretax 401K balance. I didn't start contributing to a Roth until my early 40's and I wasn't maxing it the first handful of years. By the time I was eligible for "catchup" contributions I was maxing both my Roth and 401K without the catchup - I maxed the Roth catchup contributions right away and it took me a couple of years to build up to maxing the 401K contributions. The math on that is by 52 I was maxing (with catchup contributions) both my Roth and 401K. Even at 58 I don't have enough income to max all my tax differed accounts AND contribute substantially to a taxable investment account. I max my 401K, HSA, Roth, and then anything left over goes to my taxable investment account.

Here is my advice: having Roth money in retirement is very very useful. You want Roth money to have time to grow (because all of that growth is tax free). I would definitely contribute to a Roth now - it's got 10 or 15 years to grow (it might be very helpful at 65 when medicare and then SS kicks in to help control your taxable income - when you might be needing/having some big expenses - for your housing or vehicle or something else for example <-- just get you thinking about how expenses vary from year to year... who knows what the future holds.). I would not prioritize it OVER contributing to a pretax account so I wouldn't change how much you are currently contributing pretax - but I would definitely get money into a Roth (with the goal of maxing it). Especially if your plans for the additional after tax money is to put it in a 'savings account' or 'taxable investment account' - it would be better to get that money into a Roth.

[Deleted]

Mar 5, 2022 8:42:20 GMT -5 teen persuasion said:

Mar 4, 2022 21:02:14 GMT -5 @pinkcshmere said:

I feel stupid for asking, but whatever…….. Will I have RMDs at some point regardless, for my account that is similar to a 401k? For me, it’s TSP, instead of a 401k.

If so, will that not just be whatever it is, whether I have a Roth or not? I am only calculating with my money, not mine and Mister’s. 25% sounds like a lot.

I already feel some type of way, putting myself out there asking what sounds like dumb questions to me, but I really need to figure this stuff out.

Yes, your TSP will have RMDs just like a 401k or tIRA, beginning at age 72 (although you are free to take withdrawals before then, too). 


One gotcha to be aware of: Roth versions of 401k and other employer plans also have RMDs, but Roth IRAs do not.  There would be no tax due on a Roth RMD, but you want to leave Roth funds undisturbed as much as possible, right?

The way around this stupid rule: rollover your Roth TSP into a Roth IRA before age 72.  Yippee - no Roth RMDs now!

Next issue - do I remember correctly that you will have a pension?  If so, that's another vote for Roth.  Your pension income + SS income will fill up your lowest tax brackets before you even get to the RMD income.  The more money you tax defer today, the more that comes out later as taxable RMDs.

Try to guess at your fixed taxable income in retirement using current $ numbers: what's your pension income, and SS, in current $.  What tax bracket does that put you in?  Then add RMDs on top; what is 4% of your current TSP balance (exclude Roth portion)?  Compare it to your current tax bracket.  If your current tax bracket is higher than your retirement bracket, then Roth might not make sense.  But - brackets are scheduled to revert to higher rates in a few years, and your TSP balance should  hopefully grow much larger than current values between now and 72 (whereas pension and SS should track inflation bracket changes), so it's hard to predict future tax bracket rates.  If the tax brackets look similar or close, a tie goes to Roth.

Basic view: when is it better to get the tax break - now on the deferral, or in retirement on the withdrawal? Thus it depends on your top rate in either.

I am posting on the fly, but yes I do have a pension.

I will be back later when I have more time.