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The Value of the Roth Charactertistic

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  • The Value of the Roth Charactertistic

    I have been trying to wrap my head around what the value of the never-again-taxable nature of the Roth. This post is meant to be conversational, as I'm trying to understand and consider all the aspects. My end goal being a decision whether or not to take out a 12k personal loan at the end of 2022 and pay it off Q1 2023. Currently I am paying down a debt that will be eliminated June/July of this year while getting employer match for my and my spouse's Roth 401k equivalents. Current plan once the debt is satisfied is to come close to maxing the retirement accounts for 2022 as possible... plus or minus the 12k loan for BD Roth IRAs. There would obviously be some cost to the loan in terms of interest likely greater than returns over the 3 months we'd be paying it back, but given that time travel isn't allowed, is the missed opportunity of the Roth IRA worth taking the small hit for? The alternative would be pass up the 2022 BD Roth and put the same in a taxable brokerage account Q1.

  • #2
    If you never really cash out that taxable investment because itll be among the lowest cost basis shares you ever have, and say you die and that has a step up in basis, overall maybe it would make sense to do that. But overall the roth is pretty sweet and obviously better than the taxable. With a short small loan the roth will be a good decision I think. But its not like it really matters that much if youre between these two options.

    whats the interest rate on the loan?

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    • #3
      Originally posted by Turf Doc View Post
      Whats the interest rate on the loan?
      Unknown until I got around to going through with it in likely November. Prime+3-4%? Or I suppose I could get a line of credit at that point, possibly variable ~7.25-8%. Will be influenced by what the Fed is doing, but over such a short time frame of repayment I'm not sure that specific issue would sway the decision much.

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      • #4
        Wouldn't it be a fairly straightforward estimation of returns on the 6k (compounded, without taxes) vs the (6k+loan costs)-taxes through your time interval? That should give you a ballpark number of the value.

        As a (non-physician) person still <30, my 401k is Roth and we also contribute the 6k limit to my own + spousal rIRA. That growth through time to be tax-free is going to be more valuable than the immediate tax deductions, though I'll admit to not having run that number myself.

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        • #5
          You can contribute to your 2022 IRA until tax day April 2023.

          Also could you just pay down your current debt $12k slower and contribute to your IRAs and then pay off the debt as cash flow allows?

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          • #6
            Originally posted by abds View Post
            You can contribute to your 2022 IRA until tax day April 2023.

            Also could you just pay down your current debt $12k slower and contribute to your IRAs and then pay off the debt as cash flow allows?
            ^ This is exactly what I was going to say. Both points are excellent

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            • #7
              Originally posted by abds View Post
              You can contribute to your 2022 IRA until tax day April 2023.

              Also could you just pay down your current debt $12k slower and contribute to your IRAs and then pay off the debt as cash flow allows?
              I thought BD Roth had to be done before Dec 31?

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              • #8
                Originally posted by Special Delivery View Post
                I thought BD Roth had to be done before Dec 31?
                Wrong. 4/15/22 for the contribution. Conversion by 12/31/22.

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                • #9
                  While the nominal tax filing deadline is 4/15, the 2021 tax filing and IRA contribution deadline is 4/18/22 (4/19/22 in MA/ME).

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