2 Replies Latest reply on Jul 10, 2008 4:02 PM by vs_rolemodel

    Roth IRA, vs  tax-deferred contributions

      Hello, all.  My TIAA-CREF supplemental retirement portfolio contains both tax-deferred and Roth IRA funds.  I am
      curious as to what the ideal mix of the two might be to achieve the best possible tax-savings when I begin to draw
      on my funds at retirement.

      I am, however, only 3 - 4 years away from retirement.  I wonder whether I should rebalance my portfolio to increase
      my Roth IRA contribution and decrease my tax-deferred contribution.   Since I have been contributing tax-deferred
      funds much longer than Roth IRA funds, could I possibly even achieve a post-retirement tax benefit by rebalancing
      contribution funds at this relatively late date?

      Any thoughts, ideas, on the ideal tax-deferred/Roth IRA mix for a retirement portfolio?

      Best wishes,

        • Re: Roth IRA, vs  tax-deferred contributions

          That's a good question.  I think it hinges in part on your taxable income level now compared to when you are retired.  If you income now is higher, by transferring funds out of a traditional IRA or other account that you did not pay taxes on when you contributed, it would mean you'd be in a higher tax bracket now rather than later and so you'd be paying more taxes.  (This assumes that the tax brackets won't change--which they very well could change after the election).  If your taxable retirement income will be higher, then it's time to convert now.  I  think the best option would be to convert a certain percentage every year to Roth IRA's.  I would think that having an "emergency fund" which wouldn't be taxed might be very useful when an emergency comes up.

          I'm not a tax advisor so  I'd run this by one before doing anything.

          Let me know what you find out.  I have no Roth IRAs but am doing the same type of thinking.

          One other option would be retiring and for a few years not take any or much retirement income (no SS for example) and have a low income (esp. if your spouse is still working, and during that year of low income, make the move to Roth IRAs while your income is low and you are in a lower tax bracket.

            • Re: Roth IRA, vs  tax-deferred contributions
              Thanks, JohnVL, for your thoughtful reply here.  I wish I could find a website calculator for the Roth IRA vs tax-deferred
              retirement plan question; it's probably a tricky algorithm to develop.

              I suspect that the variables of being taxed now [while working] as opposed to later [in retirement] and the frequency
              of tax-law changes all contribute to the complexity of how much to put into a tax-deferred plan [e.g., a 403(b) ] and how
              much to put into a Roth IRA.   Also, the annual contribution maximum limit for a Roth IRA, at my last check, is much lower
              than the annual contribution maximum limit for a tax-deferred retirement plan.  So maybe the deck is stacked by an
              assumption that it's better to pay taxes in retirement.; I don't think the feds assume that many people will have an income
              at retirement that will be greater than or even equal to what they were earning in working years...

              Thanks again.