Why I reject Roth - Never trust the government

[reptile baht spaniard rid]

Unless they are a fiduciary. Then they are legally obligated to do what is in your best financial interest, literally.

It’s very easy for a fiduciary to argue that whatever hairbrained scheme they come up with “was in your best interest” - but usually all it really does is have them argue that you should do the most basic boring shit that everyone else does.

It’s like talking to a CPA for investment advice, you get something that minimizes taxes but doesn’t maximize after-tax return.

 

[MerelyAPlateOfSpaghetti]

My understanding of the "can't be taxt" Roth argument is because it's already taxed when you contribute to the Roth as you can only contribute post-tax dollars.

Edit: at least on a Roth 401(k), pretty sure that's the differentiator for a Roth IRA too though

 

[Major]

Do Americans not have a tax free investment scheme? I'd use that instead

 

[MerelyAPlateOfSpaghetti]

Do Americans not have a tax free investment scheme? I'd use that instead

The government takes their taxes, one way or another. Traditional 401(k) accounts allow you to contribute using pre-tax dollars, meaning when you start getting 401(k) disbursements at retirement, that is considered taxable income and they tax the disbursement.

Roth 401(k) accounts allow you to contribute using post-tax dollars, so the idea is that when you get retirement disbursements, you have already paid taxes on that money and it shouldn't be taxed again.

I don't know how this squares up if you have multiple income sources at retirement, such as a Roth 401(k)+Social Security+Pension+Any other retirement account, that total income would still require some kind of taxes paid, even if it's "not taxing" the Roth disbursements themselves. That is one argument people make for Roth stuff though, if you think your retirement tax bracket is going to be higher than your working years tax bracket, you'll "get more" out of your Roth 401(k) than a traditional 401(k) since you paid in at X tax bracket but disbursed under Y tax bracket.

Someone who knows better than I do, feel free to correct me.

 

[reptile baht spaniard rid]

The above is basically correct - the devil is in the details.

Roth IRA contributions are taxed at your current rate which for many people, is 0% (or negative if you count the "yay you contributed" IRA credit you can get). So contributing to a Roth when you make butt and or ass (young, school, etc) can be worth it.

When you're making more money, you can avoid taxes by using a 401(k) or a traditional IRA, which takes money and pretends you didn't earn it (some contributions can avoid social security, some can't iirc). But you're taxed when you withdrawal it later.

If you have both Roth and normal retirement accounts, you can structure your withdrawals (currently, assuming no tax changes) so that you take money from the "taxable" accounts until you hit the first bracket, and the rest from the Roth.

But the OP is warning that the Feds could (and will) change the rules when shit hits the fan, the easiest being to add a VAT or similar.

Mathematically, all things being identical, contributing to a Roth or normal IRA ends up in the same after-tax dollars (assuming you're in a 20% bracket at contribution and a 20% at withdrawal).

Things like HSAs are doubly advantaged because you can tax-free money in, tax-free money out if you do it right.

 

[Major]

The government takes their taxes, one way or another. Traditional 401(k) accounts allow you to contribute using pre-tax dollars, meaning when you start getting 401(k) disbursements at retirement, that is considered taxable income and they tax the disbursement.

Roth 401(k) accounts allow you to contribute using post-tax dollars, so the idea is that when you get retirement disbursements, you have already paid taxes on that money and it shouldn't be taxed again.

I don't know how this squares up if you have multiple income sources at retirement, such as a Roth 401(k)+Social Security+Pension+Any other retirement account, that total income would still require some kind of taxes paid, even if it's "not taxing" the Roth disbursements themselves. That is one argument people make for Roth stuff though, if you think your retirement tax bracket is going to be higher than your working years tax bracket, you'll "get more" out of your Roth 401(k) than a traditional 401(k) since you paid in at X tax bracket but disbursed under Y tax bracket.

Someone who knows better than I do, feel free to correct me.

So only pension? You can't take it out whenever you like?

 

[MerelyAPlateOfSpaghetti]

So only pension? You can't take it out whenever you like?

Basically, it's not intended to be withdrawn from unless you hit retirement age - doing so early makes it subject o penalties that demolish any tax benefit they offered.

You can take 401(k) loans and pay yourself back (simplified) and I don't believe any of that is taxed,

 

[Alexander Thaut]

So, I've been wondering. An acquaintance has been offered the choice between a 401k IRA(IIRC) and a Pension plan by his employer (The State). Which one's the better option.

 

[millais]

Reject Roth, Embrace Tradition(al)

 

[lIllllIiiiiLLLLiiiiIIIIll]

Roth is my favorite of the FRONDS.

 

[reptile baht spaniard rid]

So, I've been wondering. An acquaintance has been offered the choice between a 401k IRA(IIRC) and a Pension plan by his employer (The State). Which one's the better option.

Depends on the terms and they vary wildly. Pensions are basically rare as Fuck, which tells you something.

He should get the details and post it to bogleheads.