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Thank you both for responding to my "Roth IRA.. Still tax free after 30 years?" I had gone back and found the lengthy discussion suggested by Bob and came across someone's statement pointing out that congress 'usually' makes these types of changes prospectively, not retroactively as Pixy also stated. I suppose I'll take the leap and convert.
Thanks again!!!
xxdustyxx
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<<?" I had gone back and found the lengthy discussion suggested by Bob and came across someone's statement pointing out that congress 'usually' makes these types of changes prospectively, not retroactively as Pixy also stated. I suppose I'll take the leap and convert.
Thanks again!!!
xxdustyxx >>

Huh??? It sounds like you missed the point.

Try "prospective" as in "...from this point on, all withdrawals from a Roth IRA will be taxed..."

Congress has done this type of thing over and over again. In the 80's they changed the tax rules for real-estate, and decimated the returns of people who had counted on the tax benefits. In the 90's (or was it '86?) they started taxing SS benefits (at the 85% level).

Find somebody who has been paying taxes for 20-30 years. Ask them if they are paying more taxes now, and on more things, than they were 30 years ago. Then ask yourself why the next 30 years will be different from the previous 30 years.

The government can tax a Roth without directly taxing it. And make a reasonable argument for doing so. "Withdrawal from a Roth is not taxed, but the SS benefits paid will be reduced dollar for dollar. (or even 50 cents per dollar)" Coupled with "mandatory annual distribution from a Roth."

Again, there is nothing you can do now to avoid paying a tax later, if they institute it. But you can avoid paying a tax now, by not converting. Note: this applies to the conversion question, not to making new contributions to a Roth.

Regards,
Ray
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Again, there is nothing you can do now to avoid paying a tax later, if they institute it. But you can avoid paying a tax now, by not converting. Note: this applies to the conversion question, not to making new contributions to a Roth.

Ray,

I have been thinking about your opposition to converting to a Roth. Why should your position be any different for making new contributions? Or are you assuming that any new contributions to a traditional IRA would be nondeductible because of participation in a 401(k) or other retirement plan at work? Seems to me if you assume someone could make a deductible IRA contribution, you would encourage that over a Roth contribution as well.

Cameron
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Rayvt,

I've been paying taxes for 24 years now and my rate in New York then was about 33% on $40,000 of today's dollars, counting everything (federal, NY, FICA). The mix has changed but the level on the same income is almost the same now. Where the money goes is different -- we pay it to the old people and their doctors instead of the military.

In my opinion, taxation of Social Security benefits was long overdue. Before it happened, a married couple both 65 were taking home as much on $50,000 gross including Social Security as a working couple with 2 children making $60,000 in wages.

I'm eligible to join AARP next month. Hope I remain true to my current attitudes.
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Rayvt wrote:

Try "prospective" as in "...from this point on, all withdrawals from a Roth IRA will be taxed..."

I haven't decided whether your rather automatic response to this issue is Pavlovian or if you're a James Carville/Pat Buchanan clone in your criticisms when it comes the issue of possible tax changes to Roth IRAs. <vbg> That's an event that may (not will) occur in the somewhat distant and murky future. IMHO Congress will never tax withdrawals on monies in existing Roth IRAs IF,/b> they decide to change the law. Much more likely is the simple act of prohibiting any future contributions or conversions to Roth IRAs after a certain date. Existing Roths will be allowed to continue as is under the old law. To do otherwise would certainly result in massive constituent disapproval and outrage, something no Pol will allow to happen regardless of their eagerness to dip into our pockets..

Regards….Pixy

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<<I have been thinking about your opposition to converting to a Roth. Why should your position be any different for making new contributions? >>

"We can choose only among the available alternatives, no matter how many options we _wish_ were available."
Thomas Sowell

For converting an regular IRA to a Roth, we have two alternative options:
1) Do it. Pay taxes now. Maybe don't pay taxes later.
2) Don't do it. Don't pay any taxes now. Pay taxes later.

In both cases, you pay taxes once for sure. The equivalent amount of taxes in either case. But in case #1, there is a non-zero chance that you'll *also* pay taxes in the future.

When my choices are: 1) get beaten up, or 2) get beaten
up and maybe also get kicked----I'll take #1 every time.

For new contributions:
1) To a tax-deducutable IRA (Few people have this option available. And those that do generally can't afford to contribute the money.) Don't pay taxes now. Pay taxes later.
2) To a non-deductable IRA. Pay taxes now. ALSO pay taxes later.
3) To a Roth. Pay taxes now. Maybe don't pay taxes later.

#1 isn't available to most of us. Of the two remaining options, #3 is the best.

Ray
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JABoa said:
<<In my opinion, taxation of Social Security benefits was long overdue. >>

Without debating the merits of taxing or not taxing SS, it is quite clear that it didn't used to be taxed, people made plans based on that fact, and the government changed the rules in the middle of the game.

In planning for your future, you have to take into account the possibility that they will change the rules again. Based on past history, I assess this possibility as close to 100%. The only question is when.

Regards,
Ray
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<<Rayvt wrote:

Try "prospective" as in "...from this point on, all withdrawals from a Roth IRA will be taxed..."

I haven't decided whether your rather automatic response to this issue is Pavlovian or if you're a James Carville/Pat Buchanan clone in your criticisms when it comes the issue of possible tax changes to Roth IRAs. <vbg> That's an event that may (not will) occur in the somewhat distant and murky future. IMHO Congress will never tax withdrawals on monies in existing Roth IRAs IF,/b> they decide to change the law. Much more likely is the simple act of prohibiting any future contributions or conversions to Roth IRAs after a certain date. Existing Roths will be allowed to continue as is under the old law. To do otherwise would certainly result in massive constituent disapproval and outrage, something no Pol will allow to happen regardless of their eagerness to dip into our pockets..

Regards….Pixy>>

Pixy, I have to strongly disagree with you here. What is the basis of your opinion? It is indisputable that Congress has changed tax laws many times. Some recent examples come to mind: Taxing a portion os SS benefits, limiting capital loss deductions to $3000 per year, drastically changing the tax laws for real-estate investors.

Yeah, they might never tax Roth IRAs (either directly or indirectly). And to quote Garth, "Yeah, and monkeys might come flying out of my *ss."

"Never underestimate the passion of a government for the contents of your wallet."

I would agree, though, that they are more likely to tax them indirectly than directly.

Regards,
Ray
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Ray, you said:

Pixy, I have to strongly disagree with you here.

Of course you do. :-) That's what makes things interesting.

In reality, when it comes to a Roth -- and particularly conversions -- it's a bet. IMHO it all boils down to my favorite saying: "Ya makes your choices and ya lives with the results."

Regards....Pixy
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Rayvt writes (in part) (emphasis mine):

For converting an regular IRA to a Roth, we have two alternative options:
1) Do it. Pay taxes now. Maybe don't pay taxes later.
2) Don't do it. Don't pay any taxes now. Pay taxes later.

In both cases, you pay taxes once for sure. The equivalent amount of taxes in either case. But in case #1, there is a non-zero chance that you'll *also* pay taxes in the future.


I reply:

The emphasized statement appears wrong. In option 1, you pay taxes now on the current value of your account. In option 2, you pay taxes later on the value of your account as augmented by your investment gains, which will far outstrip (presumably) inflation. Thus, it seems to me that the present value of the taxes you risk paying down the line by not converting substantially exceeds the present value of the taxes you will pay by converting.

One other point should be made. When converting, you do not pay taxes on the amount of your after-tax contributions, because you've already been taxed on that money. Therefore, for those of us who did not have the option of making non-deductible contributions, the choice is between (1) paying taxes now on a few years of gains with the chance of never paying taxes again on that money, and (2) paying taxes later on many years of compounded gains. I haven't run any numbers, but my sense is that conversion is the right move to maximize your expectation value unless you have a very high estimate of the probability that Congress will tax Roth money before you take it out of a Roth account. --Bob
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Ray wrote:

>>For new contributions:
1) To a tax-deducutable IRA (Few people have this option available. And those that do generally can't afford to contribute the money.) Don't pay taxes now. Pay taxes later.
2) To a non-deductable IRA. Pay taxes now. ALSO pay taxes later.
3) To a Roth. Pay taxes now. Maybe don't pay taxes later.

#1 isn't available to most of us. Of the two remaining options, #3 is the best.<<

We've had this arguement before, and neither of us is willing cede ground on this issue. (Primarily because I'm right and Ray's just stubborn <g>.)

Option #1 is, in fact, available to most of us. For 1998, full deductibility for married filers is allowed for incomes up to $50,000, and that rises to $80,000 by 2007. For single filers in 1998, full deductibility is allowed for incomes up to $30,000 (with partial deductibility to $40,000), and the fully deductible income level rises to $50,000 by 2007.

The average household income in this country is in the low $30,000 range. (Sorry, I don't have a precise figure, but it's around 31-32K.) To argue that this option isn't open (or affordable) for most of us is--not correct, just stubborn.
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>>In option 1, you pay taxes now on the current value of your account. In option 2, you pay taxes later on the value of your account as augmented by your investment gains, which will far outstrip (presumably) inflation. Thus, it seems to me that the present value of the taxes you risk paying down the line by not converting substantially exceeds the present value of the taxes you will pay by converting.<<

Yes, but the question isn't really just about taxes, it's about the *net* cash-in-hand during retirement. The offset that you're missing is the value of the money used to pay those taxes in order to convert. The rational idea is that the money NOT used for taxes now could be invested to grow at the same rate as the IRA.

In retirement (Caution--based upon current tax law!), the IRA money is taxed as ordinary income while the non-IRA money is taxed as capital gains, at a significantly lower rate. Assuming a buy-and-hold strategy, you should be able to minimize taxes in the non-IRA investment. You'll almost certainly be stuck with some taxes on dividends before retirement in the non-IRA investment (unless everything is in BRK), but the lower cap gains rate will balance out (or possibly increase) the net cash you receive.
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Rayvt:
<<For converting an regular IRA to a Roth, we have two alternative options:
1) Do it. Pay taxes now. Maybe don't pay taxes later.
2) Don't do it. Don't pay any taxes now. Pay taxes later.

In both cases, you pay taxes once for sure. The equivalent amount of taxes in either case.[emphasis added] But in case #1, there is a non-zero chance that you'll *also* pay taxes in the future.

When my choices are: 1) get beaten up, or 2) get beaten up and maybe also get kicked----I'll take #1 every time.>>

What about people who are in the 15% bracket today but expect to be in a higher bracket by retirement? Doesn't that change the assumption in bold above in favor of conversion to a Roth? Granted, nobody knows future tax rates but I can't imagine that I'll be still in a bracket as low as 15% 30-35 years from today.

Chris
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A few days ago I restarted this debate on converting the Roth IRA with my concerns as to whether it would still be tax free in 30+ years. After reading the responses and opinions as of late, I have a few new thoughts.
T.Rowe Price has a very good program on the money issues regarding converting your exising IRAs. I purchased it through the mail last year for $10, but I see you can now download it for $4.95 from http://www.troweprice.com/retirement/troweretireIRAHome.html
It will show what your IRA will be worth based on your tax rates, AGI, contributions thus far, etc. for deductible, non-deductible and Roth IRAs. I've found it an indespensible tool in helping me to determine what to do.

Since I'm 27 years old, my IRA in worth about $8723 (due to the market dip), and $2320 of that were non-deductible contributions; That makes my additional income this year $1044 if I were to convert ([$8723-$2320]=$6403 $6403/4 years=$1044). This means I'll pay about $450 more on my tax returns for the next four years for a total of $1800 in tax to convert.

Lets say I continue to contribute $2000 for 33 more years (retire @60), with 10% annual gain, my IRA will be worth $668,902. If I live till 90, that is 30 years of distributions. The total amount of IRA distribution money during that 30 years is $1,838,580 if I convert & they don't tax me. Not bad eh? If I don't convert it'll be worth $1,033,487 due to 31% Fed tax & 10.7% State.
(I'm in the 28% bracket now).

Hmmm, $800,000.
Losing $1800 in the next four years in order to potentially come out with $800,000 more when I'm old and gray.

For someone in my position, young & with a small IRA value, it might just be worth taking a chance on the future Congress.
Check out the T.Rowe Price software and play with numbers yourself (or use a spreadsheet -- which I did as well to check on T.Rowe Price).
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<<Ray, you said:

Pixy, I have to strongly disagree with you here.

Of course you do. :-) That's what makes things interesting.

In reality, when it comes to a Roth -- and particularly conversions -- it's a bet. IMHO it all boils down to my favorite saying: "Ya makes your choices and ya lives with the results."

Regards....Pixy >>

Cool! I much prefer it when people can disagree without calling each other names. That's what makes these boards so much more fun than the Yahoo boards and Usenet.

I heard it as "Ya pays your money and ya takes your chance."

I *really* like a Danny DeVito quote from a movie, "The choices we make determine the type of life we lead."

Not quite to the same point, but I love in nonetheless.

Ray
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<<The emphasized statement appears wrong. In option 1, you pay taxes now on the current value of your account. In option 2, you pay taxes later on the value of your account as augmented by your investment gains, which will far outstrip (presumably) inflation. Thus, it seems to me that the present value of the taxes you risk paying down the line by not converting substantially exceeds the present value of the taxes you will pay by converting.>>

This was discussed in detail a few months ago. Due to the commutative laws of multiplication, the net results are exactly equivalent (assuming the same tax rate--which is a good assumption).

Paying the tax on the convertion from other money changes (and muddies) the picture somewhat. But then you have to consider the gains that you forgo on the money that went for taxes instead of being invested. Most analyses don't do this properly.

Truly, this ain't easy. And in most cases of complexity, the neophyte is a disadvantage. The first goal of a con artist is to confuse the mark.

Regards,
Ray
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<<We've had this arguement before, and neither of us is willing cede ground on this issue. (Primarily because I'm right and Ray's just stubborn <g>.)>>

Hmmmm. As I recall, I won the debate and you slunk off in abject defeat. ;-)

<<The average household income in this country is in the low $30,000 range. (Sorry, I don't have a precise figure, but it's around 31-32K.) To argue that this option isn't open (or affordable) for most of us is--not correct, just stubborn. >>

Nope. Been there, done that. Most of the people who qualify can't afford to. After paying for food, clothing, housing, taxes (mustn't forget taxes--they are a larger expense more median-income families than the previous three items combined), car payment, insurance, cable, phone, electricity, gas, etc., most low-income families (the ones most likely to work for an employer who does not offer a 401k) do NOT have an extra $2000 of disposable income. I read the stats on some gov't WEB site somewhere, and IIRC these are where I got my information from.

Regards,
Ray
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<<What about people who are in the 15% bracket today but expect to be in a higher bracket by retirement? Doesn't that change the assumption in bold above in favor of conversion to a Roth? >>

Let's get real. (No offense intended.) My retired widowed 73 year old mother is in the 28% tax bracket! And she is NOT rich.

On the face of it, your statement is correct. But it applies to very, very few people. Really, what is the chance that a person in the 15% tax bracket has any money in an IRA at all? I suspect that most of the people in this situation are those who just happen to be taking a year off from work and are therefore in a low tax bracket for that one year. Darned few people.

Regards,
Ray
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Rayvt writes:

This was discussed in detail a few months ago. Due to the commutative laws of multiplication, the net results are exactly equivalent (assuming the same tax rate--which is a good assumption).

Paying the tax on the convertion from other money changes (and muddies) the picture somewhat. But then you have to consider the gains that you forgo on the money that went for taxes instead of being invested. Most analyses don't do this properly.

Truly, this ain't easy. And in most cases of complexity, the neophyte is a disadvantage. The first goal of a con artist is to confuse the mark.


I reply:

As tc001 pointed out rather more directly than did Rayvt, in my earlier post, I overlooked the opportunity cost of lost investment gains on the money used to pay current taxes. Nevertheless, Rayvt's equivalence argument holds only if (1) the entire traditional IRA was funded with deductible contributions (squarely contrary to Rayvt's assertion that few people who are eligible to make such contributions can afford them), (2) taxes are paid from within the account (contrary to the advice of almost every financial professional I have ever encountered), and (as Rayvt acknowledges) (3) tax rates remain the same.

To see that assumption (1) is necessary, it is only necessary to assume that the traditional IRA to be converted was funded 100% with non-deductible contributions and has not (yet) grown. In that case, the tax necessary to convert is $0, but the future tax liability for non-conversion is (assuming any growth at all) somewhat greater than $0.

On the further assumption that taxes are paid from funds that would otherwise have been used for long-term investments, my earlier analysis and assumption (2) are overly favorable to the conversion, because (if Congress changes the rules to tax Roth assets) you are trading capital gains for ordinary income.

I disagree with Rayvt's assertion (3) that assuming the same tax rate is well founded. If your investments prosper, you may well find yourself in a higher tax bracket.

See, it's not so complex. After eight years of graduate mathematics, three years of law school, and five years in practice, even a neophyte can do it! ;-) --Bob
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Rayvt wrote:
<<Really, what is the chance that a person in the 15% tax bracket has any money in an IRA at all? I suspect that most of the people in this situation are those who just happen to be taking a year off from work and are therefore in a low tax bracket for that one year. Darned few people.>>

Granted - but I think that's more due to the type of people they are than the amount they can contribute. I suspect that many of the same people would contribute no more to an IRA if their income went up $10k or more.

When I was first starting out, for a couple years I was able to fully fund both a SEP-IRA _and_ a deductable personal IRA. I certainly didn't do it because I had more money than I could spend!

Later,
scott
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>> the type of people they are
-----------

I can hardly believe the presumption, arrogance, and sheer meanness of this posting and the one to which it replies.

At least Rayvt took into account those of us who are voluntarily and perhaps temporarily in the lowest tax bracket. But it is altogether wrong to assume that no one in a low tax bracket is able to save or invest, and extremely offensive to suggest that we are all some "type of people."

Don't bother to reply to this message. I'm taking this board and all other overpaid-yuppie-self-congratulation boards off my list. Goodbye and good riddance.
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<< Really, what is the chance that a person in the 15% tax bracket has any money in an IRA at all? >>

Our first IRA was started from a graduate student assistantship. Saving has NOTHING to do with tax bracket - it has to do with attitude.

RF...still remembering the days working in the cannery
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Rayvt:
<<On the face of it, your statement is correct. But it applies to very, very few people. Really, what is
the chance that a person in the 15% tax bracket has any money in an IRA at all? I suspect that most
of the people in this situation are those who just happen to be taking a year off from work and are
therefore in a low tax bracket for that one year. Darned few people.>>

Gee, Ray, I didn't know I was that special! I am comfortably inside the 15% bracket & my wife & I have IRAs which, in toto, are worth in the mid-five digits (up until June-July it was the middle-upper 5 digits, but that's another story...).

Anyway, I think you're too quick to dismiss folks in the 15% bracket as just scraping by. To qualify for this bracket, one's taxable income must be below ~$42K (MFJ). When you add on a ~$10K mortgage deduction & the standard deductions for your basic 2.3 kid family, your AGI could easily be another ~$20K higher. Don't think for a moment that a family making ~$60K can't save enough to fully fund 2 IRAs: been there, done that!

Chris

PS- Does your family tree include anyone named Marie Antoinette? 'Let zem eat cake, zey cannot fund an IRA anyhow, poor peasants!' <VBG> ;-)
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TchrP, in response to a posting by Rayvt, wrote:

>> the type of people they are
-----------

I can hardly believe the presumption, arrogance, and sheer meanness of this posting and the one to which it replies.

At least Rayvt took into account those of us who are voluntarily and perhaps temporarily in the lowest tax bracket. But it is altogether wrong to assume that no one in a low tax bracket is able to save or invest, and extremely offensive to suggest that we are all some "type of people."

Don't bother to reply to this message. I'm taking this board and all other overpaid-yuppie-self-congratulation boards off my list. Goodbye and good riddance.


Granted, Ray's comment was intemperate, ill-considered and basically biased. However, I fail to see how you can call this board a forum of "overpaid-yuppie-self-congratulation" types. I'm not a boomer or a gen-Xer, and certainly don't think of myself as a yuppie or a guppie, either.

Folks from all economic circumstances and all generations post here and throughout TMF. Are you gonna let one ill-mannered post cause you to leave? I certainly hope not. But if you are, just be aware many -- probably the vast majority -- of us don't share the thoughts expressed in the missive you (and we) find so disagreeable. For that reason, please don't tar all of us with the same brush. Otherwise you will be just as guilty of prejudicial thinking as Ray's hopefully poorly expressed comment is.

Regards...Pixy
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RF says:

Saving has NOTHING to do with tax bracket - it has to do with attitude.

I totally, absolutely, 1001-percent agree. My daughter and her hubby are blessed with three children. Together and by choice they gross less than $40K per year. Despite that, they still have managed to amass in excess of $200K and maintain a mortgage of over $110K. Attitude, willingness, and an ability to cut corners is what counts. And BTW, they also manage $4K per year for their IRAs, too.

Bravo for your comments.

Regards....Pixy
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Clarification: the message to which I objected wasn't posted by Rayvt.

But it's not just one message. Although most of the participants in this board are concerned primarily with their own retirement investments, there's another thread of discussion that's more theoretical. Lately it has concerned itself with whether, how, and why others invest, or don't, and that line of discussion is distasteful.
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TchrP writes:

But it's not just one message. Although most of the participants in this board are concerned primarily with their own retirement investments, there's another thread of discussion that's more theoretical. Lately it has concerned itself with whether, how, and why others invest, or don't, and that line of discussion is distasteful.

I reply:

I'm not certain whether you find distasteful (1) the topic itself or (2) the views expressed on the topic. If the latter, I agree, but suggest that the best remedy for speech is more speech, not offended silence. I, for one, learned something from your initial post; until reading it, the offensive nature of the broad-brush characterizations had slipped by me.

If the former, I suggest a justification (necessarily theoretical, for which I do not apologize). In addition to our choices, which we can control, our retirement plans depend on the value of our investments and on the public (primarily tax) policies applied to those investments. Ultimately, these depend on the choices of others: how much will someone else be willing to pay for the investments I will hold when I retire? What tax policies will get politicians elected or defeated? This board is a unique, albeit highly unscientific tool, for getting a read on these two questions. --Bob
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Xxdustyxx wrote:

>>T.Rowe Price has a very good program on the money issues regarding converting your exising IRAs. I purchased it through the mail last year for $10, but I see you can now download it for $4.95.....

It will show what your IRA will be worth based on your tax rates.....<<

Don't take this wrong, but at $10, $4.95, or free, it will still be just as worthless. TRP can't tell you what your IRA will be worth based on tax rates coming from laws that haven't even been written yet. Sure, you can estimate pre-withdrawal value with some fair guessing (at what rate of growth?). But it's net cash that counts. Even assuming that rates stay identical to today's after thirty years (very unlikely), every spreadsheet I've seen overlooks very basic assumptions using those numbers.

Check out my 1/31/98 post on the Tax Strategies board to get the details on what all the big boys missed. In short, bracket ceilings, personal exemptions, and standard deductions will keep going up, meaning that your million dollar IRA may not be forcing you into a higher tax bracket after all.

Remember, the numbers I ran came from the widely held, simplistic assumption that current conditions would continue on into the future. I think I presented a fair arguement in that early post that even then most people (mutual funds, financial writers, advisors, etc.) don't know what the hell they're talking about. Now add the complexities of what the situation may really be like in 10, 20, 30, or more years, and even getting that software for free would be a waste of time.
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TchrP,

"Clarification: the message to which I objected wasn't posted by Rayvt."

Ooops. You're right. Obviously, my brain wasn't fully engaged. I should have gone back in the thread to verify who used that loose language. As with Bob, it escaped me in the first reading. Thus, remembering who first made a comment, I "assumed," and (as the saying goes) that assumption made an ass out of me.

My sincere apologies to Ray.

Regards....Pixy
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TchrP wrote:
<<Clarification: the message to which I objected wasn't posted by Rayvt.>>

Then I can only assume that you were responding to my posting? Post 5531?

If so, might I ask that you elaborate on what got you so riled up about it? When I saw your response, I figured "Sheesh, I must have put my foot in it," but when I went back and re-read the posting, there wasn't anything obviously inflammatory about it.

Perhaps I'm just too damn far into "overpaid-yuppie-self-congratulation" land or something...

Later,
scott
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Shess:
<there wasn't anything obviously inflammatory about it.>

Like the old saying goes, if 10 people tell you you're drunk, go home & lie down, regardless of how you think you feel.

You wrote:
<Granted - but I think that's more due to the type of people [emphasis added] they are than the amount they can contribute. I suspect that many of the same people would contribute no more to an IRA if their
income went up $10k or more.>

I think most people assumed that you were saying that ALL people in the lowest income tax bracket are shiftless spendthrifts; i.e., 'poor' people are poor because of a character defect which prevents them from saving money, regardless of their income level. Whether or not you intended to say that is another issue, but that's what it sounded like to me.
What you might have said (without fear of contradiction or causing offense) is that Americans, in general, at all income levels save very little and that that would account for the low levels of IRA savings which Ray was speculating about.

Chris
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Shess:
<there wasn't anything obviously inflammatory about it.>

SnootFool replied:
<<Like the old saying goes, if 10 people tell you you're drunk, go home & lie down, regardless of how you think you feel.>>

Probably good advice.

Shess:
<Granted - but I think that's more due to the type of people [emphasis added] they are than the amount they can contribute. I suspect that many of the same people would contribute no more [more emphasis -scott] to an IRA if their income went up $10k or more.>

SnootFool replied:
<<I think most people assumed that you were saying that ALL people in the lowest income tax bracket are shiftless spendthrifts; i.e., 'poor' people are poor because of a character defect which prevents them from saving money, regardless of their income level.>>

Huh. Interesting take on what I said - I suppose it _could_ be read that way. What I intended it to mean, though, was that people who save money tend to save money pretty much regardless of how little they earn, whereas many people could get a substantial raise and not save any more money than they already do.

Live and learn, I guess,
scott
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<<Gee, Ray, I didn't know I was that special! >>
You are. We ALL are. None of us who hang out on the Motley Fool are typical.


<<Anyway, I think you're too quick to dismiss folks in the 15% bracket as just scraping by. >>
This is not a "dismissal". It's just a statement of the plain facts.

<<. Don't think for a moment that a family making ~$60K can't save enough to fully fund 2 IRAs.>>
Gee, suddenly we've moved from discussing people at the median family income ($35K) to far, far higher. That $25K difference represents a LOT of disposable income.

I dug the government statistics out, but I left the printout at work, so I have to go from memory. Here goes:
1996 tax year (the latest posted on the IRS site),
for the filed tax returns with AGI between $30K and $40K--which neatly encompasses the median family income.. 5.88% of these tax returns had a payment to an IRA. Of these, the average IRA payment was $1420.

So..... less than 6% of these people contributed to an IRA. And the average IRA payment was only 70% of the allowable maximum.

Now, to me this bears out the claim that "most of these people can't afford to fund an IRA". Despite what you or I may think about what they can afford, *they* don't seem to think that they can afford it.

Ray

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<<My sincere apologies to Ray.

Regards....Pixy >>

Apology accepted.
Now I'll remove you from my killfile. ;-)

Ray

That's a funny. Get it? If you were in my killfile, I wouldn't have seen your apology in the first place.
Ha Ha! I slay me!




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Rayvt quotes:
<<1996 tax year (the latest posted on the IRS site), for the filed tax returns with AGI between $30K and $40K--which neatly encompasses the median family income.. 5.88% of these tax returns had a payment to an IRA. Of these, the average IRA payment was $1420.>>

Interesting... Was there any data which would allow you to adjust for age? It would be interesting to subtract out retirement age filers and also filers under 35 or so, which I'd expect to have disproportionate representation in this bracket, to see how the savings rate of lower-income filers between 35 and 55 compares to that of higher-income filers at the same ages. I'd bet that the percentage of income socked away will be higher, though obviously the absolute amounts are unlikely to be higher (at $35k/year, you can only go so far compared to someone making $90k/year).

[I'd do it myself, but the browser window downloading the info has been sitting there for five minutes trying to connect. I don't think it's going to happen ...]

Later,
scott
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<< Now, to me this bears out the claim that "most of these people can't afford to fund an IRA". Despite what you or I may think about what they can afford, *they* don't seem to think that they can afford it.

Ray >>

Don't forget that Americans have a significantly
lower savings rate than many other wester countries.
Maybe the above is a reflection of that (and maybe
not, I don't think one can tell).

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Scott wrote:

Huh. Interesting take on what I said - I suppose it _could_ be read that way. What I intended it to mean, though, was that people who save money tend to save money pretty much regardless of how little they earn, whereas many people could get a substantial raise and not save any more money than they already do.

Live and learn, I guess,


With the written word it's impossible to hear voice inflection or to read body language. For that reason, you may be positive that Murphy's Law will apply when those words are read by others. What you intend and what others perceive may be miles apart. Just ask me … I'm a past master of written unintended consequences.

Just chalk it all up as one of life's more uncomfortable lessons and move on. Based on my past experience with postings, it won't be the last time your message will be interpreted in a way far different than you wish. But I will guarantee that you will take far greater care in their selection in future missives. <g>

Regards….Pixy
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Ray wrote:

Regards....Pixy >>

Apology accepted.
Now I'll remove you from my killfile. ;-)

Ray

That's a funny. Get it? If you were in my killfile, I wouldn't have seen your apology in the first place.
Ha Ha! I slay me!


Careful. With puns and jokes like that I may have to call for reinforcements. I could always ask for TMF Aruba, Chief Foolish Punster or TMF Cheeze, High Court Jester to stage a counterattack. If that happened, we would all suffer unmerciful agony until we succumbed to their painful repartee. And who knows what they might do to each other in the process? Please don't make me get that desperate. I don't want the consequences on my conscience when I meet my maker. :-D

Regards….Pixy
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>> What I intended it to mean, though, was that people who save money tend to save money pretty much regardless of how little they earn, whereas many people could get a substantial raise and not save any more money than they already do.
------------------

I'm sorry that I misunderstood your message. What you say here is something with which I agree.

The statistics on IRA participation in the range that includes the median income are interesting but, to my mind, inconclusive. Just speaking for myself: I stopped making IRA contributions when they became non-deductible for me, but during the years I didn't make them, I had money going into a 403(b) plan. My last year in such a plan was 1996, and I did make an IRA contribution for 1997.
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I sure wish I was here last night!

I'm in the 15% bracket and take no offense. Being a Fool I am no fool. My two small businesses have a low net, but great cash flow that allows me to ROTH and SIMPLE to the max.

Granted I'm not the typical 15%er.

Language is a bit like the tax code. It means something a little different in each situation.

Mel
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