Your Money, Your Wealth What's the Break-Even Point on Roth Conversions? - 477
Apr 16, 2024
Explore the intriguing world of Roth conversions and discover when going all-in on Roth might not be the optimal strategy. Delve into the differences between marginal and effective tax rates while contemplating saving to after-tax brokerage versus pre-tax accounts. Uncover the break-even calculation for Roth conversions and learn about the mechanics of the mega backdoor Roth. Plus, gain insights on solo 401(k) filing requirements to stay compliant. Their engaging discussions make complex financial topics accessible and relatable!
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Prioritize Roth When Young
- Favor Roth accounts when you're young because future income and tax brackets often rise.
- Keep some pre-tax and brokerage for flexibility, but prioritize tax-free growth when possible.
Compare After‑Tax Purchasing Power
- Account balances look larger pre-tax but their purchasing power is reduced by future taxes.
- Compare after-tax dollars, not nominal account statements, when evaluating Roth vs pre-tax.
Don't Rely On Saving Tax Deductions
- If you save the tax deduction from pre-tax contributions you may equal a Roth outcome, but few actually save that money.
- Don't assume disciplined saving of tax savings; plan for typical behavior instead.