Thanks for your reply, didn’t expect anything so quickly!
I understand your logic as it applies to current tax law. Does the same apply if the Senate GOP gets its way and changes the deductibility of medical expenses? If more than 15% is no longer deductible, won’t that throw me into a higher tax bracket? Also I have heard nothing about indexing the brackets, have I missed that?
If nothing changes for this tax year, which is my assumption for this late in the year, should I take my RMD as cash and use the Roth if I were to need additional withdrawals?
Thank you for your enlightening articles.

Hi Lynn,

Great questions… and here are two things I think you want to consider: First, regarding the 25% tax bracket in retirement, whether that rate means it makes sense to go with a Roth depends on what your top tax bracket is now. If it’s 28% or higher now, you want to avoid that 28% or higher tax rate now… and then pay the 25% rate later. (This rate difference is the thing we want to focus on.)

Second, regarding long-term care and and medical expenses, these seem to me to be exactly the sorts of expenses that should come out of a traditional, non-Roth account. Here’s why: If you pull, say, an extra $50K out of a traditional account for medical expenses but you get a close to $50K medical deduction, the $50K is mostly tax-free even with a traditional account in many cases.

Hope that helps!

You should be able to draw down your $250K IRA without paying income taxes. For example, say you draw 4% or $10,000 a year…

In this case, your Social Security benefits won’t be taxed… and then your $6,300 standard deduction and then your $4,050 personal exemption will shelter that $10,000…

So you can pay the extra $20K in taxes today… or not… but either way you probably won’t need to worry about the income taxes:

http://evergreensmallbusiness.com/why-you-dont-need-to-worry-about-taxes-in-retirement/

I’m not sure how retirement tax rates are calculated, but I assume I can just retire and then with only Social Security income I’m in the bottom tax bracket. Presto, that should limit my liability at retirement to a poverty level income.

The two issues as I see it are that longterm it’s only responsible that tax rates go up with deficit spending and the big elephant in the room that with the Roth I get tax-free gains. I expect my 72K to follow the market to 250K in 25 years from now.

So I’ve viewed it more as, do I want to pay taxes on 72K? Or on 250K? I’m begging you to correct me if I’m wrong, this has been a tough decision for me.

Unfortunately, Samir, I think your comment probably misleads (though perhaps unintentionally).

In any case, one really does want to compare marginal rates. Using effective tax rates–if by effective tax rate you mean the average tax rate–will overstate the benefits of using a traditional IRA or 401(k).

That’s probably not that bad. Most people probably should use a traditional IRA or 401(k).

But your approach will hide situations where someone saves money by using a Roth-style account.

Thanks for demystifying the hype though. I, too, can’t understand how prominent personalities can go around recommending Roth accounts over traditional accounts without considering the math!