Tips for wife new job retirement account

[Jackmomma]

Hi, solo practice guy here, we've done well with all our retirement accounts with a solid mix of Roth, non-Roth, and taxable accounts.

 

My wife got a new job with a state institution that not only allows her to put in a max of 18K in a 403(b), but also another 18k in a deferred compensation plan.

The 403(b) can be Roth.

Our financial advisor recommends non-Roth so as to reduce tax burden. WCI forum agree or disagree?

[jz]

The general recommendation :

Roth......during a year when your income is not at peak earnings, you are young, your marginal rate is low.

Regular....when you are at peak earnings, high  tax rate, only 15-20 years from withdrawing it at  retirement.

When you pay taxes to Roth, the money paid to taxes is gone forever.  You are betting that you have enough decades to recapitalize  that money back again, exceed your initial loss, and then not pay taxes to withdraw it, perhaps while avoiding an even higher overall tax rate.

[jz]

Also, financial advisors are biased toward nonRoth.  The reduced AUM nets them less fees.

[jfoxcpacfp]

jz wrote:

Also, financial advisors are biased toward nonRoth.  The reduced AUM nets them less fees.

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With all due respect, comments like that make me crazy. Where did you get that idea or are you drawing your own conclusions? It's like me saying, "Doctors are biased toward ordering lots of tests so they can make more money." Besides, how is the AUM reduced?

fwiw, I'm one of the biggest Roth cheerleaders you'll ever find. I believe I have a lot of company.

[jfoxcpacfp]

Jackmomma wrote:

Hi, solo practice guy here, we’ve done well with all our retirement accounts with a solid mix of Roth, non-Roth, and taxable accounts.

 

My wife got a new job with a state institution that not only allows her to put in a max of 18K in a 403(b), but also another 18k in a deferred compensation plan.

The 403(b) can be Roth.

Our financial advisor recommends non-Roth so as to reduce tax burden. WCI forum agree or disagree?

Click to expand...

Since you own your own business, you have potential opportunities to time income and expense so that your wife can commit to a Roth in years when you have unusually high costs (for example, expensive equipment, furniture, etc. you can section 179 or a year with high repairs and maintenance) and go to traditional 401k in years when profits will be higher. Without knowing the nature of your practice and the stage of your career, tax bracket, etc., it is difficult to advise other than generically. In a bear market, go Roth, but that's a tough one to monitor as an employee.

In general (jz notwithstanding) I push Roth whenever possible. Yes, you are paying taxes up-front, but I don't observe many people investing the taxes they save from contributing to a deductible retirement account. The tax savings typically is absorbed into spending. In that case, better imo to pay the taxes and put your tax-free dollars to work. It's easy to get caught up in the math but life doesn't always mimic equations.

[jz]

@jfox,

1) It's basic arithmetic. If I spend my money to pay (Roth) taxes, then I have less money to invest ( in taxable); hence, less AUM.

2)  "it's like..............inapt analogy"  All analogies are incomplete. not a logical way to assert your point.

My statement doesn't impugn morality;  it's just acknowledges bias.

[jfoxcpacfp]

 

@jfox,

1) It’s basic arithmetic. If I spend my money to pay (Roth) taxes, then I have less money to invest ( in taxable); hence, less AUM.

2)  “it’s like…………..inapt analogy”  All analogies are incomplete. not a logical way to assert your point.

My statement doesn’t impugn morality;  it’s just acknowledges bias.

Click to expand...

Except you're positing that all people invest tax refunds. I therefore conclude financial advisors are also biased toward people who brew Folgers at home rather than going by Starbucks.

Practically speaking, assuming AUM is the motivator, financial advisors should be biased toward Roth because there are no RMDs.

[Kennyt7]

ROTH=NO BRAINER ALWAYS

[Jackmomma]

Thanks for the replies.

1. Our financial advisor is hourly/fee based only so whether he told us to go Roth or non-Roth he didn't make any more or less

2. Our financial situation knock on wood is fairly solid. I am early 40's, wife late 30's. I just started solo practice last year but am on track to max out 53K for my business 401k this year.

Sounds like you guys lean Roth which is what I felt mostly all along anyways (going against our advisor). In any case I like my advisor but I certainly am the type that doesn't follow blindly.

 

 

[VagabondMD]

Kennyt7 wrote:

ROTH=NO BRAINER ALWAYS

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Not true. My wife and I need to do everything possible to reduce tax burdens in our peak earning years. We pay nearly 50% of our marginal earnings, between Federal, ACA surcharge, state, and local income taxes.

[childay]

Yes vagabond raises the obvious question

jackmomma, what is your marginal tax rate?