Quote:
Originally Posted by petegz28
You left out some significant parts..
A) You can withdraw your capital from a ROTH penalty free prior to 59 1/2 if you need the money
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Right, but that's not what Lew was talking about. He was talking about distributions not being taxed.
Quote:
Originally Posted by petegz28
B) If you intend to retire and a similar income level that you currently have then you cannot automatically assume you will have a lower tax bracket if you are pulling all of your income from taxable retirement savings such as a 401k or a Traditional IRA
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You're right, you can't automatically assume that, which is why I said "In theory".
Quote:
Originally Posted by petegz28
And a notable correction to what you said about where a ROTH "shines". You are not accurate. A ROTH shines in the fact that what you withdraw is not taxed. A Traditional IRA or 401k does not have its "gains" taxed at all. But you will pay tax at the ordinary income level when you do withdraw from them.
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Wrong-o dude. I have no interest in getting in a pissing match on a financial thread, but what I've said is accurate.
What you withdraw out of a ROTH is not taxed. What you withdraw out of a Traditional IRA/401K is taxed upon withdrawl. What you withdraw consists of:
ROTH =
Basis (what you contributed after tax meaning you paid tax on it)
+Gain(Not taxed)
401K/IRA =
Basis (contributed pretax, meaning it wasn't taxed, but is taxed upon withdrawl)
+Gain (taxed on withdrawl)
My statement was accurate - gains are not taxed. So was your's. Lew's point is typically correct also, having investments in both ROTH and Traditional
should net you a lower tax bracket.
But for most folks, what is really appealing about a ROTH is that the gains aren't taxed. Especially if they are younger and have more time for gains to compound.