Roth IRA vs Traditional

[edna_mode]

Ya’ll are thinking about this differently than I do. My concept is diversification — not of asset classes, but of *tax treatment*. Right now, 401(k) and traditional IRAs are treated the same — tax deferred upon contribution, taxed at withdrawal. Both Roth IRAs and Roth 401(k)s are treated the opposite.

I suspect the odds are high that there will continue to be at least these two classes of tax treatment over time for retirement accounts. So no matter how each changes, I am likely to benefit from not having all of my eggs in one tax treatment basket.

So I have a 401(k) with match at work, and a Roth IRA for myself. Two different tax treatments — for someone still decades from retirement. If I were closer, than I might be able to project more accurately what the govmint might do.

So neither is “better”, only “different”. This argument is like the stocks vs. bonds thing, in my eyes.

[Coronita]

[quote=PatentGuy]There is also the state tax, which is no small deal in California. We plan to move to a zero or low income tax state prior to taking any distributions from our tax deferred IRA/401K/CB Pension/403(b)/457 plans.

Slightly OT, but I’ve decided against converting a significant (over $500K) pre-tax IRA to a Roth IRA this year, despite the GWB fed rate of 35%, because we would also have to pay 9.55% CA tax, so real rate is around 42% (I can deduct part of the CA tax paid from my fed taxible income). Also, I don’t believe for a minute that 20 years from now the government won’t figure out how to “tax” any gains in the Roth IRA that were supposed to be “tax free”. And, I want to do my small part of starving the government beast. Paying out a big wad of volunary Fed and CA income tax this year will only make Congress and the Unions that much bolder in ramping up base-line spending for the future.[/quote]

Interesting idea. Actually, how do you establish residency in another state? Does it necessarily require one to move? Not so much as I plan on doing it (yet), just curious.

Just for giggles, from Nevada:

“Unless otherwise required by a specific statute, NRS 10.155 provides that the legal residence of a
person in Nevada is that place where the person has been physically present within the State during the
period for which residency is claimed. Legal residence starts on the day that such actual physical
presence begins. If a person leaves the jurisdiction of his or
her residence with the intention, in good
faith, of returning without delay and continuing his or her residence, the time of absence is not
considered in determining the fact of residence.”

and

http://buschfirm.com/articles/tpcArt_avoiding_ca.html

[Coronita]

[quote=PatentGuy]There is also the state tax, which is no small deal in California. We plan to move to a zero or low income tax state prior to taking any distributions from our tax deferred IRA/401K/CB Pension/403(b)/457 plans.

Slightly OT, but I’ve decided against converting a significant (over $500K) pre-tax IRA to a Roth IRA this year, despite the GWB fed rate of 35%, because we would also have to pay 9.55% CA tax, so real rate is around 42% (I can deduct part of the CA tax paid from my fed taxible income). Also, I don’t believe for a minute that 20 years from now the government won’t figure out how to “tax” any gains in the Roth IRA that were supposed to be “tax free”. And, I want to do my small part of starving the government beast. Paying out a big wad of volunary Fed and CA income tax this year will only make Congress and the Unions that much bolder in ramping up base-line spending for the future.[/quote]

Interesting idea. Actually, how do you establish residency in another state? Does it necessarily require one to move? Not so much as I plan on doing it (yet), just curious.

Just for giggles, from Nevada:

“Unless otherwise required by a specific statute, NRS 10.155 provides that the legal residence of a
person in Nevada is that place where the person has been physically present within the State during the
period for which residency is claimed. Legal residence starts on the day that such actual physical
presence begins. If a person leaves the jurisdiction of his or
her residence with the intention, in good
faith, of returning without delay and continuing his or her residence, the time of absence is not
considered in determining the fact of residence.”

and

http://buschfirm.com/articles/tpcArt_avoiding_ca.html

[Coronita]

[quote=PatentGuy]There is also the state tax, which is no small deal in California. We plan to move to a zero or low income tax state prior to taking any distributions from our tax deferred IRA/401K/CB Pension/403(b)/457 plans.

Slightly OT, but I’ve decided against converting a significant (over $500K) pre-tax IRA to a Roth IRA this year, despite the GWB fed rate of 35%, because we would also have to pay 9.55% CA tax, so real rate is around 42% (I can deduct part of the CA tax paid from my fed taxible income). Also, I don’t believe for a minute that 20 years from now the government won’t figure out how to “tax” any gains in the Roth IRA that were supposed to be “tax free”. And, I want to do my small part of starving the government beast. Paying out a big wad of volunary Fed and CA income tax this year will only make Congress and the Unions that much bolder in ramping up base-line spending for the future.[/quote]

Interesting idea. Actually, how do you establish residency in another state? Does it necessarily require one to move? Not so much as I plan on doing it (yet), just curious.

Just for giggles, from Nevada:

“Unless otherwise required by a specific statute, NRS 10.155 provides that the legal residence of a
person in Nevada is that place where the person has been physically present within the State during the
period for which residency is claimed. Legal residence starts on the day that such actual physical
presence begins. If a person leaves the jurisdiction of his or
her residence with the intention, in good
faith, of returning without delay and continuing his or her residence, the time of absence is not
considered in determining the fact of residence.”

and

http://buschfirm.com/articles/tpcArt_avoiding_ca.html

[Coronita]

[quote=PatentGuy]There is also the state tax, which is no small deal in California. We plan to move to a zero or low income tax state prior to taking any distributions from our tax deferred IRA/401K/CB Pension/403(b)/457 plans.

Slightly OT, but I’ve decided against converting a significant (over $500K) pre-tax IRA to a Roth IRA this year, despite the GWB fed rate of 35%, because we would also have to pay 9.55% CA tax, so real rate is around 42% (I can deduct part of the CA tax paid from my fed taxible income). Also, I don’t believe for a minute that 20 years from now the government won’t figure out how to “tax” any gains in the Roth IRA that were supposed to be “tax free”. And, I want to do my small part of starving the government beast. Paying out a big wad of volunary Fed and CA income tax this year will only make Congress and the Unions that much bolder in ramping up base-line spending for the future.[/quote]

Interesting idea. Actually, how do you establish residency in another state? Does it necessarily require one to move? Not so much as I plan on doing it (yet), just curious.

Just for giggles, from Nevada:

“Unless otherwise required by a specific statute, NRS 10.155 provides that the legal residence of a
person in Nevada is that place where the person has been physically present within the State during the
period for which residency is claimed. Legal residence starts on the day that such actual physical
presence begins. If a person leaves the jurisdiction of his or
her residence with the intention, in good
faith, of returning without delay and continuing his or her residence, the time of absence is not
considered in determining the fact of residence.”

and

http://buschfirm.com/articles/tpcArt_avoiding_ca.html

[Coronita]

[quote=PatentGuy]There is also the state tax, which is no small deal in California. We plan to move to a zero or low income tax state prior to taking any distributions from our tax deferred IRA/401K/CB Pension/403(b)/457 plans.

Slightly OT, but I’ve decided against converting a significant (over $500K) pre-tax IRA to a Roth IRA this year, despite the GWB fed rate of 35%, because we would also have to pay 9.55% CA tax, so real rate is around 42% (I can deduct part of the CA tax paid from my fed taxible income). Also, I don’t believe for a minute that 20 years from now the government won’t figure out how to “tax” any gains in the Roth IRA that were supposed to be “tax free”. And, I want to do my small part of starving the government beast. Paying out a big wad of volunary Fed and CA income tax this year will only make Congress and the Unions that much bolder in ramping up base-line spending for the future.[/quote]

Interesting idea. Actually, how do you establish residency in another state? Does it necessarily require one to move? Not so much as I plan on doing it (yet), just curious.

Just for giggles, from Nevada:

“Unless otherwise required by a specific statute, NRS 10.155 provides that the legal residence of a
person in Nevada is that place where the person has been physically present within the State during the
period for which residency is claimed. Legal residence starts on the day that such actual physical
presence begins. If a person leaves the jurisdiction of his or
her residence with the intention, in good
faith, of returning without delay and continuing his or her residence, the time of absence is not
considered in determining the fact of residence.”

and

http://buschfirm.com/articles/tpcArt_avoiding_ca.html

[carlsbadworker]

I completely agree with edna_mode. The economists have already been talking about value-added-tax in place of income tax as the way it works in pretty much the entire world. If that happens, there is no tax benefit from Roth anymore. I would caution those who think Roth is definitely better, “tax” diversification is the way to go.

[carlsbadworker]

I completely agree with edna_mode. The economists have already been talking about value-added-tax in place of income tax as the way it works in pretty much the entire world. If that happens, there is no tax benefit from Roth anymore. I would caution those who think Roth is definitely better, “tax” diversification is the way to go.

[carlsbadworker]

I completely agree with edna_mode. The economists have already been talking about value-added-tax in place of income tax as the way it works in pretty much the entire world. If that happens, there is no tax benefit from Roth anymore. I would caution those who think Roth is definitely better, “tax” diversification is the way to go.

[carlsbadworker]

I completely agree with edna_mode. The economists have already been talking about value-added-tax in place of income tax as the way it works in pretty much the entire world. If that happens, there is no tax benefit from Roth anymore. I would caution those who think Roth is definitely better, “tax” diversification is the way to go.

[carlsbadworker]

I completely agree with edna_mode. The economists have already been talking about value-added-tax in place of income tax as the way it works in pretty much the entire world. If that happens, there is no tax benefit from Roth anymore. I would caution those who think Roth is definitely better, “tax” diversification is the way to go.

[an]

[quote=carlsbadworker]I completely agree with edna_mode. The economists have already been talking about value-added-tax in place of income tax as the way it works in pretty much the entire world. If that happens, there is no tax benefit from Roth anymore. I would caution those who think Roth is definitely better, “tax” diversification is the way to go.[/quote]
It’s one thing to change the rule on new contribution. It’s another thing to change the rule on pre-existing investments/contribution. If it’s that easy for them to change the taxes of pre-existing Roth accounts, wouldn’t that also mean it would be just as easy for them to remove tax benefit of traditional 401k/IRA? They can easily make it all taxable all the time. So, there’s no deferral tax benefit.

BTW, I don’t know about you guys but if everything goes as planned for me, I’ll be much better off when I retire than where I am now. So, even if it’s deferred, I would still be paying more taxes than I do now. I also won’t have kids/house/etc. to write off like I do now. If I’m afraid of them changing tax rule for Roth, I would also be afraid of them changing income tax rule as well.

[an]

[quote=carlsbadworker]I completely agree with edna_mode. The economists have already been talking about value-added-tax in place of income tax as the way it works in pretty much the entire world. If that happens, there is no tax benefit from Roth anymore. I would caution those who think Roth is definitely better, “tax” diversification is the way to go.[/quote]
It’s one thing to change the rule on new contribution. It’s another thing to change the rule on pre-existing investments/contribution. If it’s that easy for them to change the taxes of pre-existing Roth accounts, wouldn’t that also mean it would be just as easy for them to remove tax benefit of traditional 401k/IRA? They can easily make it all taxable all the time. So, there’s no deferral tax benefit.

BTW, I don’t know about you guys but if everything goes as planned for me, I’ll be much better off when I retire than where I am now. So, even if it’s deferred, I would still be paying more taxes than I do now. I also won’t have kids/house/etc. to write off like I do now. If I’m afraid of them changing tax rule for Roth, I would also be afraid of them changing income tax rule as well.

[an]

[quote=carlsbadworker]I completely agree with edna_mode. The economists have already been talking about value-added-tax in place of income tax as the way it works in pretty much the entire world. If that happens, there is no tax benefit from Roth anymore. I would caution those who think Roth is definitely better, “tax” diversification is the way to go.[/quote]
It’s one thing to change the rule on new contribution. It’s another thing to change the rule on pre-existing investments/contribution. If it’s that easy for them to change the taxes of pre-existing Roth accounts, wouldn’t that also mean it would be just as easy for them to remove tax benefit of traditional 401k/IRA? They can easily make it all taxable all the time. So, there’s no deferral tax benefit.

BTW, I don’t know about you guys but if everything goes as planned for me, I’ll be much better off when I retire than where I am now. So, even if it’s deferred, I would still be paying more taxes than I do now. I also won’t have kids/house/etc. to write off like I do now. If I’m afraid of them changing tax rule for Roth, I would also be afraid of them changing income tax rule as well.

[an]

[quote=carlsbadworker]I completely agree with edna_mode. The economists have already been talking about value-added-tax in place of income tax as the way it works in pretty much the entire world. If that happens, there is no tax benefit from Roth anymore. I would caution those who think Roth is definitely better, “tax” diversification is the way to go.[/quote]
It’s one thing to change the rule on new contribution. It’s another thing to change the rule on pre-existing investments/contribution. If it’s that easy for them to change the taxes of pre-existing Roth accounts, wouldn’t that also mean it would be just as easy for them to remove tax benefit of traditional 401k/IRA? They can easily make it all taxable all the time. So, there’s no deferral tax benefit.

BTW, I don’t know about you guys but if everything goes as planned for me, I’ll be much better off when I retire than where I am now. So, even if it’s deferred, I would still be paying more taxes than I do now. I also won’t have kids/house/etc. to write off like I do now. If I’m afraid of them changing tax rule for Roth, I would also be afraid of them changing income tax rule as well.

[Author]

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