Social Security ....The monthly Check...yes or no

[Ken]

Generally, someone in a 30% tax bracket isn’t eligible to contribute to a Roth at all.

It was just a hypothetical example to make the math easy. Point being, the money you invest in a Roth IRA is after-tax dollars. You already paid the tax on those dollars. By contrast, the money you invest in a traditional IRA is pre-tax dollars. That money has never been taxed.

So with a Roth you pay income tax on those dollars before you invest in the Roth. With a traditional IRA you pay the income tax when you withdraw in retirement.

[ohio jones]

You don't avoid taxes with an IRA. You just defer them until retirement and pay them when you withdraw the money. Taxes still get paid. That is why IRAs have required minimum distributions (RMDs) based on age. That way the government gets some of the taxes back that were deferred.

My parents take the RMD from their IRAs every year, and sometimes a bit more, and haven't paid a penny in taxes.

[ohio jones]

If an Anabaptist group objects to Social Security then they need to find an alternative way to provide an income stream for their elderly couples and widows who are NOT actively farming.

They need to provide for the basic necessities of those people. That doesn't necessarily involve providing an income stream.

[Ken]

You don't avoid taxes with an IRA. You just defer them until retirement and pay them when you withdraw the money. Taxes still get paid. That is why IRAs have required minimum distributions (RMDs) based on age. That way the government gets some of the taxes back that were deferred.

My parents take the RMD from their IRAs every year, and sometimes a bit more, and haven't paid a penny in taxes.

OK, if we are being pedantic about it. The RMD that they withdraw every year is considered ORDINARY TAXABLE INCOME. But they may have a low enough income or have structured their finances in such a way to reduce their tax burden down to zero.

[Ken]

If an Anabaptist group objects to Social Security then they need to find an alternative way to provide an income stream for their elderly couples and widows who are NOT actively farming.

They need to provide for the basic necessities of those people. That doesn't necessarily involve providing an income stream.

Income or income in kind. Presumably even conservative Anabaptist retirees still need shelter, food, clothing, utilities, and still want to move about and so will have transportation costs. All of that costs money.

I don't know how all conservative Security Exempt churches operate, but expect they aren't communes like the Hutterites or Bruderhof in that people do spend some of their own money in retirement for such things and don't depend on the church for everything.

[ken_sylvania]

You don't avoid taxes with an IRA. You just defer them until retirement and pay them when you withdraw the money. Taxes still get paid. That is why IRAs have required minimum distributions (RMDs) based on age. That way the government gets some of the taxes back that were deferred.

My parents take the RMD from their IRAs every year, and sometimes a bit more, and haven't paid a penny in taxes.

OK, if we are being pedantic about it. The RMD that they withdraw every year is considered ORDINARY TAXABLE INCOME. But they may have a low enough income or have structured their finances in such a way to reduce their tax burden down to zero.

Moving income from a higher income tax year to a lower income tax year in order to lower income taxes... is called.... tax avoidance! That's what IRAs are designed for.

[Ken]

My parents take the RMD from their IRAs every year, and sometimes a bit more, and haven't paid a penny in taxes.

OK, if we are being pedantic about it. The RMD that they withdraw every year is considered ORDINARY TAXABLE INCOME. But they may have a low enough income or have structured their finances in such a way to reduce their tax burden down to zero.

Moving income from a higher income tax year to a lower income tax year in order to lower income taxes... is called.... tax avoidance! That's what IRAs are designed for.

Yes, but you are just guessing that your tax burden will be higher at age 30 when you put money into the IRA than it will be at age 70 when you take the money back out. That might be true for some people but untrue for others. Also the income tax rates can change during those intervening 40 years (tax rates can go up or down). So it is really just a roll of the dice.

What is actually happening is that you are taking the money that you would owe in taxes today and the government is letting you keep that money for 40 years and let you invest it and then pay taxes 40 years later when you take it back out. It is like a free loan from the government that you can invest and earn money on.

So with a traditional IRA the government is letting you keep your tax dollars to invest and earn money on now with the condition that you will owe taxes when you take the money out.

With a Roth IRA you pay taxes on the money today and then any earnings you get on the money is tax free and it is not considered taxable income when you take the money back out in retirement.

General rule of thumb. If you think your tax burden will be lower in retirement then today, invest in a traditional IRA. If you think you tax burden will be higher in retirement than today, invest in a Roth IRA. There are exceptions, but that is the rule of thumb.

[eccentric_rambler]

Moving income from a higher income tax year to a lower income tax year in order to lower income taxes... is called.... tax avoidance! That's what IRAs are designed for.

Slightly pedantic, I know, but Traditional IRA's are a mixture of deferral and avoidance, unless withdrawn only in years when they do not result in additional taxable income.

[Ken]

Moving income from a higher income tax year to a lower income tax year in order to lower income taxes... is called.... tax avoidance! That's what IRAs are designed for.

Slightly pedantic, I know, but Traditional IRA's are a mixture of deferral and avoidance, unless withdrawn only in years when they do not result in additional taxable income.

True, although once you hit 70 or so, RMD requirements kick in and you have to take a distribution anyway regardless of your taxes.

My parents are 85 and in that condition. They have to take big RMDs but don't really need the money so all they are doing is taking the money out of the IRA, paying taxes on it, then putting it back into another non-IRA investment account. As time goes by, more and more of their savings is slowly being converted from an IRA to ordinary an taxable investment account.

Or really, their Menno investment advisor is doing all of that for them and just sending them annual tax statements.

[ohio jones]

Yes, but you are just guessing that your tax burden will be higher at age 30 when you put money into the IRA than it will be at age 70 when you take the money back out. That might be true for some people but untrue for others. Also the income tax rates can change during those intervening 40 years (tax rates can go up or down). So it is really just a roll of the dice.

What is actually happening is that you are taking the money that you would owe in taxes today and the government is letting you keep that money for 40 years and let you invest it and then pay taxes 40 years later when you take it back out. It is like a free loan from the government that you can invest and earn money on.

For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs.

It's entirely possible to contribute to an IRA at a time when no dice are necessary. Perhaps even simultaneously making contributions and taking RMDs.