I’d be happy to write a post about that for next week. (It’s a broad enough topic that I’d prefer to cover it with a post rather than simply write thoughts off the top of my head.)

I understand your points, and I agree with you and Mike that a Roth is often overrated.

Realize, however, that there are those of us who lurk in the shadows of these blogs, who are not even in the highest tax brackets right now, and we’re putting more than $50k per year (combined) into 401k’s. (Yes, it’s possible with profit sharing 401k arrangements). And we’re still young, in our early 30′s. So I definitely expect to be taxed on alot of income in retirement, and I have a feeling it will be at a higher rate than 35%.

We skim through all the posts on Get Rich Slowly about saving your rubber bands and cutting back on Netflix to save $5 per month because we’re looking for some of the good discussions that show up occasionally (more often here, BTW).

Mike,
I’d love to see you write about tax efficient investing for when the sheltered accounts are already maxed out.

Specifically, what’s your take on Vanguard’s tax efficient stock funds? What are your thoughts on their tax-free muni bond funds? What if you don’t live in one of the designated states, and therefore (I assume) would still have to pay the state income tax on it?

Right now all tax sheltered money goes to Vanguard’s Target Retirement 2050. Free cash after that has been eliminating the mortgage, but we’re getting to the end of that.

I still don’t think a ROTH is good. I can just retire in Nevada, Washington, or any of the other 5 states to save on state income tax of 10% (CA) when I retire.

Let’s say I earn $500,000 a year now, and retire at 60. I highly doubt I will have $10,000,000 in liquid assets to earn 5% interest off of to replicate the $500,000/yr income I make now.

Most people are lucky to have 10X their salary in capital ($500K X 10 = $5mil) let alone 20X as required in this case.

Hence, I think people are fooling themslves if they think they’ll have much more money in their 60′s. The government is smart, and is proposing this conversion to take people’s tax dollars now. Smart gov’t.

Hmmm, I may have to write a post about this!

First, I’d agree that Roth IRAs are generally overrated. Many people invest in them (or convert to them) who probably should go for tax-deferred rather than tax-free. They just don’t understand the math.

That said, there are many times in which it does make sense:

For example, in my own situation, I fully expect to be earning more in my 60s than I am now. Health permitting, I intend to continue running a business.

Second example: Many people believe that while their taxable income may not go up, their tax rate may go up anyway due to legislative changes.

Third example: Some people already have so much invested in tax-deferred accounts (401k or traditional IRA) that their taxable income in retirement is likely to be significant, and it may make sense at this point to tax diversify.

Regarding required minimum distributions in 401k plans, this article from IRS.gov explains it pretty clearly.

Also, question on 401K. Is there a guide as to how much is the MINIMUM one needs to take out starting at age 60? For example, let’s say I’m 60 and have $1 million in my 401K. B/c I want to pay minimal taxes, I want to take out the least amount. Is it based on an actuarial age where they say the normal person lives til 80, so 1 mil divided by 20 =$50,000 a year or something?

thnx!