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Talking stocks, trading, and investing in general

UnFacconable

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First decade in the 2000s US equities (large cap growth) did poorly. The last 10 years US outperformed.

Thoughts on the next decade (US tech will maintain its dominance--all ships will rise with the tide e.g., energy and infrastructure spending)? Or will we see a mean reversion instead?

Yes.

People may have views but I think it would be foolish to take action on it. VTI and/or S&P500 is likely to beat any portfolio that is tilted away from them. Hedge fund dudes spend all day long with a lot of resources at their disposal and very rarely can reliably beat the market just by investing in public securities so I doubt that there is some simple secret to unlock excess gains.

US equities have a lot of exposure to international markets so to the extent the US economy were to lag, that doesn’t necessarily mean US stocks would lag. But they could.

You have to decide what risks you are willing to take.
 

javyn

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The future of finance is hear

1737060348493.png
 

gettoasty

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This is throwing me for a loop

Roth 401k vs Pretax 401k, unless your future marginal tax rate drops significantly, Roth 401k seems to produce more wealth inclusive of tax. Say 37% vs 22% i.e., a household will need to drop several rungs down. My initial thought is this calculator is looking at someone's lifetime in a linear manner or strictly growth and taxes. Factoring in spending and RMD?


Edit:
The assumed reinvesting tax-savings at 7% LT return completely excludes other utility e.g., second home, kids, etc. ?? No other cash flow considerations. Calculator is helpful to look at things financially per se but otherwise one dimensional it seems.
 
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double00

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This is throwing me for a loop

Roth 401k vs Pretax 401k, unless your future marginal tax rate drops significantly, Roth 401k seems to produce more wealth inclusive of tax. Say 37% vs 22% i.e., a household will need to drop several rungs down. My initial thought is this calculator is looking at someone's lifetime in a linear manner or strictly growth and taxes. Factoring in spending and RMD?


Edit:
The assumed reinvesting tax-savings at 7% LT return completely excludes other utility e.g., second home, kids, etc. ?? No other cash flow considerations. Calculator is helpful to look at things financially per se but otherwise one dimensional it seems.

that's like the whole feature of the Roth platform imho , the vehicle represents a revenue loss to the gov't .

i remember when Roth IRA came out they had pretty low limits on contributions , iirc the revenue loss issue was why .

somebody else can weigh in on the math but I always figured it as a limited cherry for taxpayers
 

venividivicibj

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This is throwing me for a loop

Roth 401k vs Pretax 401k, unless your future marginal tax rate drops significantly, Roth 401k seems to produce more wealth inclusive of tax. Say 37% vs 22% i.e., a household will need to drop several rungs down. My initial thought is this calculator is looking at someone's lifetime in a linear manner or strictly growth and taxes. Factoring in spending and RMD?


Edit:
The assumed reinvesting tax-savings at 7% LT return completely excludes other utility e.g., second home, kids, etc. ?? No other cash flow considerations. Calculator is helpful to look at things financially per se but otherwise one dimensional it seems.
Sometimes people can work part time late in life? Would be a great time to convert IRA-->Roth when at very low/marginal tax brackets. But yes, I think generally, you're right.

It is good to have both Roth and Pretax though, so you can kind of finagle tax brackets when combining both incomes in retirement, leading you to take home lots of money with very little tax implications.
 

Piobaire

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Sometimes people can work part time late in life? Would be a great time to convert IRA-->Roth when at very low/marginal tax brackets. But yes, I think generally, you're right.

It is good to have both Roth and Pretax though, so you can kind of finagle tax brackets when combining both incomes in retirement, leading you to take home lots of money with very little tax implications.

Not sure you can finagle things like that. I think there’s proportional assumptions concerning withdrawal, i.e. your withdrawals in a year will be assumed to consist of the proportions of your entire portfolio.
 

Hombre Secreto

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that's like the whole feature of the Roth platform imho , the vehicle represents a revenue loss to the gov't .

i remember when Roth IRA came out they had pretty low limits on contributions , iirc the revenue loss issue was why .

somebody else can weigh in on the math but I always figured it as a limited cherry for taxpayers

For non-business folks wouldn't it be better to put REIT stocks that won't be penalized with dividends being taxed?
 

jbarwick

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We have a few hundred K in Trad IRAs so we would have a big tax bill if we converted. I could probably talk to a professional about it but I am not really worried too much about the tax on my small nest egg.
 

imatlas

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My 401K offers the "Roth IRA Mega Backdoor" which isn't nearly as sexy as it sounds. I started using that last year in order to be able to maximize the finagling the @venividivicibj mentioned, but I suspect my retirement horizon may be too close for it to actually make much of a difference.
 

jack webb

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I believe you have to wait five years before withdrawing money that has been converted from a traditional IRA/401(K) to a Roth IRA, which makes that tactic less appealing to someone near retirement. Conversions probably make the most sense for those with at least 20 years to go. In exchange for the up-front tax hit you get a chance to compound your wealth over decades, and then get it all tax-free.
 

losrockets

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I opened a solo401k through Employee Fiduciary with my 1099 income. Already maxing out my w2 employer sponsored 401k but I can put in an employer contribution to the solo 401k up to 20%ish of 1099 income and also make voluntary after tax Roth contributions up to the lesser of the total combined 401k limit or my remaining 1099 income. It's the "mega backdoor" option referenced above and a better option than my brokerage since I won't be taxed on withdrawal.
 

venividivicibj

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My 401K offers the "Roth IRA Mega Backdoor" which isn't nearly as sexy as it sounds. I started using that last year in order to be able to maximize the finagling the @venividivicibj mentioned, but I suspect my retirement horizon may be too close for it to actually make much of a difference.
It actually is as sexy as it sounds, because it's not limited by the usual 21-23k yearly maximum limit, but rather the 69k total limit
 

gettoasty

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All good discussions, I resonate with the tax diversification i.e., leveraging pretax, Roth, and taxable investments/savings. However, this all still misses the mark to my OP.

If you're going to stay in the same marginal tax bracket pre- and post-retirement, and the objective is maximizing your employer's retirement plan, the numbers illustrate that a Roth 401k is preferrable to pretax 401k. This is quite contrary to popular belief where most is pretax, which I can only presume people want more take home pay today and knowing what the future holds is difficult.

This calculator does a better job teasing this out (no option to reinvest the additional take home pay or tax savings).


If that's the case my mind is blown unless there's something I'm not accounting for besides budget i.e., most people would want more pay today. But at higher marginal tax rates, there's enough discretionary income to really consider this IMO. Less the second reason besides higher take home pay is a butt load of tax liability today that can be discouraging. Think about it--pretax savings = lower tax liability. Roth savings = higher tax liability (but more money/income in the future).

Factoring higher tax rates across the board in the US at some future date, this makes Roth 401k (or IRA) even more favorable today i.e., pay the relatively low rates now.

As mentioned, the best of both worlds per se with most flexibility is taking advantage of the pretax 401k + "after-tax-auto-conversion to Roth 401k" = $70k this year.

To frame it another way, pretax 401k seems most optimal if there is fair certainty future marginal tax rate is several rungs lower than today i.e., 24% to 12%. For households at higher marginal tax rate today, I have to assume they'll be at the same marginal tax rate in the future if not more due to pension and accumulation of other appreciating assets e.g., rentals that all fill in the income gap if not more vs. prime earning years.

tl;dr
  • If you're at 24% marginal tax rate and below, I think pretax 401k is fine. (Big assumption is your future marginal tax rate will drop)
  • If you're at 24% marginal tax rate and above, I think Roth 401k is better. (Big assumption is your future marginal tax rate will stay the same or go higher)
  • The wildcard being if workplace offers the "after-tax" option that can auto convert to Roth, allowing building of both tax buckets.
  • If US tax rates explode at a future date, this is all moot.
 
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