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post #1 of 27 (permalink) Old 05-07-2012, 10:59 AM Thread Starter
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Traditional IRA vs. Roth IRA?

Who does what?

Whats your age?

I am doing some research on Roth IRAs. I currently have a traditional IRA, which has 4% deductions, and is matched 4% by my employer. This includes profit sharing, but is separate from my stocks, portfolio. I have been contributing to this, for approx. 5.5 years. I recently, turned 30 and am debating, if I should either convert my traditional 401k to a Roth, or create another account specifically for Roth contributions?

I know the information concernng Traditonal vs Roth. I am looking more so for opinions and experiences, if anyone has any.
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post #2 of 27 (permalink) Old 05-07-2012, 11:00 AM
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You might want to PM Polish Pete. He helped my with my IRA's last year.
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post #3 of 27 (permalink) Old 05-07-2012, 11:05 AM
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If you qualify, ROTH is by FAR the best way to go.

Steps (from Dave Ramsey)

1. Put into your 401k whatever your employer match is
2. Max out your ROTH
3. If you are still not up to 15% of your income, put the balance in your 401k at the office.

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post #4 of 27 (permalink) Old 05-07-2012, 11:39 AM Thread Starter
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Quote:
Originally Posted by G2G View Post
You might want to PM Polish Pete. He helped my with my IRA's last year.
ya ill throw pete a pm. i didnt know he dabbled in these.

Quote:
Originally Posted by Wink View Post
If you qualify, ROTH is by FAR the best way to go.

Steps (from Dave Ramsey)

1. Put into your 401k whatever your employer match is
2. Max out your ROTH
3. If you are still not up to 15% of your income, put the balance in your 401k at the office.
ya ideally thats be awesome...but financially i cannot swing those percentages. other than the 4%, i have an additional 10% going into discounted stocks. i think ill still open a roth and do 2-4%, just to supplement what i have.

other than the roth deductions already being taxed, and assuming the future tax rate and/or my tax bracket will be higher, are there any other benefits? i know that there are no mandatory withdrawls later...i think age 70
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post #5 of 27 (permalink) Old 05-07-2012, 11:39 AM
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If you do convert to a Roth .... you will pay tax on the full amount now.

That said ..... all of the interest compounded over time is then tax-free..... unless they change the rules at some point.


At your age .... it's a no-brainer...... Roth.


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post #6 of 27 (permalink) Old 05-07-2012, 11:44 AM
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Are you asking about converting a previous employers 401K to a Roth or the current one you are contributing to now? if the first, sure go for it. if the later, why?

Greg

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post #7 of 27 (permalink) Old 05-07-2012, 11:47 AM Thread Starter
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Originally Posted by gsd656 View Post
Are you asking about converting a previous employers 401K to a Roth or the current one you are contributing to now? if the first, sure go for it. if the later, why?
converting my existing 401k...or maintaining the 401k and doing a seperate Roth...im almost certain i need to maintain some sort of traditional for matching purposes.

the only 401k i have now is my current...if that clarifies.

Last edited by nannho; 05-07-2012 at 11:49 AM.
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post #8 of 27 (permalink) Old 05-07-2012, 11:53 AM
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You are giving us limited information so we'll have to make some assumptions.

On a 401K, the only thing you want to do contribute at least the percentage matched, and evaluate you investment strategy (aggressive/diversified/income) based on your age and risk tolerance.

You are welcome to open a seperate IRA or Roth. Make your decision on which one, based on tax deductability and your tolerance for liquidity.

http://www.irs.gov/retirement/articl...202510,00.html

Greg


Last edited by gsd656; 05-07-2012 at 12:04 PM.
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post #9 of 27 (permalink) Old 05-07-2012, 01:00 PM
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Quote:
Originally Posted by Wink View Post
If you qualify, ROTH is by FAR the best way to go.

Steps (from Dave Ramsey)

1. Put into your 401k whatever your employer match is
2. Max out your ROTH
3. If you are still not up to 15% of your income, put the balance in your 401k at the office.
I disagree..the benefit of the Roth is to have tax free earnings when you draw on it when you retire, but 20 years from now I'm sure that will change when the government is desperate for every nickle they can get. Take advantage of the tax savings now in my opinion.

Look, I can appreciate this. I was young too, I felt just like you. Hated authority, hated all my bosses, thought they were full of shit. Look, it's like they say, if you're not a rebel by the age of 20, you got no heart, but if you haven't turned establishment by 30, you've got no brains. Because there are no story-book romances, no fairy-tale endings. So before you run out and change the world, ask yourself, "What do you really want?"
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post #10 of 27 (permalink) Old 05-07-2012, 01:06 PM
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Quote:
Originally Posted by Wink View Post
If you qualify, ROTH is by FAR the best way to go.

Steps (from Dave Ramsey)

1. Put into your 401k whatever your employer match is
2. Max out your ROTH
3. If you are still not up to 15% of your income, put the balance in your 401k at the office.
+1 on Roth.
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post #11 of 27 (permalink) Old 05-07-2012, 01:29 PM
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Quote:
Originally Posted by BanditCPA View Post
I disagree..the benefit of the Roth is to have tax free earnings when you draw on it when you retire, but 20 years from now I'm sure that will change when the government is desperate for every nickle they can get. Take advantage of the tax savings now in my opinion.
True!

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post #12 of 27 (permalink) Old 05-07-2012, 02:30 PM

 
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I can definitely help (thanks for the nod Steve). We do a lot of this. Give me a call and we can talk. I'm not sure how much I can post up here due to FINRA rules...so I'll keep this brief.

Just for those reading, and to make it clear, you can "change" your current 401K that might be in a traditional product, to a Roth, but it must stay where it's at. In order to take your 401K out and transition to another tax qualified account, there must be a "qualifying event" (like termination of employement). So, your options for that 401K would be to leave it as is, change it to a Roth at the same place it's at (basically just changing it's tax treatment), or withdraw the money (not recommended).

So now you're looking at opening a seperate account to save more for retirement and take advantage of the tax benefits.

What I like...keep the 401K, max it out to at least what the employer matches, and maybe put some more in if you're happy with what investments are available to you, the costs/fees, and the performance of the product.

As a supplement, start a personal Roth IRA, and max it out.

To me, that's the basis/starting point of a good retirement plan.

Quote:
Originally Posted by BanditCPA View Post
I disagree..the benefit of the Roth is to have tax free earnings when you draw on it when you retire, but 20 years from now I'm sure that will change when the government is desperate for every nickle they can get. Take advantage of the tax savings now in my opinion.
Check out this chart. As much as everyone hates taxes...we're near historical lows right now. The thought process might be that the government needs money, and will continue to need money, and can only increase taxes...but that's an opinion that each person needs to make on their own. No one knows exactly where taxes will be at any point.

(Side note: Have you guys seen the news that the feds are toying with an idea to stop the tax benefits of 401K's, and instead have that money go to the government...that is, they would make it a LAW that every worker in the US has to save money (by sending it to the feds), and the government would then manage that money for you, and return it to you at retirement (isn't that what Social Security is??)...and, they would give it to the social security administration to manage for you (so it really is Social Security again!!). To me, this is just unthinkable.))



Quote:
Originally Posted by Wink View Post
If you qualify, ROTH is by FAR the best way to go.

Steps (from Dave Ramsey)

1. Put into your 401k whatever your employer match is
2. Max out your ROTH
3. If you are still not up to 15% of your income, put the balance in your 401k at the office.
I like this.

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post #13 of 27 (permalink) Old 05-07-2012, 02:32 PM
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Some employers match either 401 or Roth.


That makes the choice easy.


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post #14 of 27 (permalink) Old 05-07-2012, 02:41 PM Thread Starter
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ok... great info by everyone...so ty.

i have contacted my payroll dept and contacted my retirement planner as well. for my particular case:

-my company will allocat the 4% match to my traditional 401k ONLY. the roth is a personal account and due to laws, they cannot match a personal account...even though i can manage my roth, with my traditional 401.

so what i will do is create a roth, within my current elections of my retirment provider (which 4% match will continue to be applied to my existing IRA) and use the roth to supplement my other financial plans. when i leave, pete ill be contacting you.

lol...thinking abut retirement now...and for the past 5 years...is ridicilious! planning for is is smart, but thinking about the concept of being retired, when i am olny 3o, is hilarious! haha.

Last edited by nannho; 05-07-2012 at 02:45 PM.
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post #15 of 27 (permalink) Old 05-07-2012, 02:42 PM
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Quote:
Originally Posted by PolishPete View Post
(Side note: Have you guys seen the news that the feds are toying with an idea to stop the tax benefits of 401K's, and instead have that money go to the government...that is, they would make it a LAW that every worker in the US has to save money (by sending it to the feds), and the government would then manage that money for you, and return it to you at retirement (isn't that what Social Security is??)...and, they would give it to the social security administration to manage for you (so it really is Social Security again!!). To me, this is just unthinkable.))

.
If this happens, there will be hell to pay in DC.

Look, I can appreciate this. I was young too, I felt just like you. Hated authority, hated all my bosses, thought they were full of shit. Look, it's like they say, if you're not a rebel by the age of 20, you got no heart, but if you haven't turned establishment by 30, you've got no brains. Because there are no story-book romances, no fairy-tale endings. So before you run out and change the world, ask yourself, "What do you really want?"
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post #16 of 27 (permalink) Old 05-07-2012, 02:42 PM Thread Starter
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u called it

Quote:
Originally Posted by BLARNEY View Post
Some employers match either 401 or Roth.


That makes the choice easy.


Tom
lol...ya this...
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post #17 of 27 (permalink) Old 05-07-2012, 06:06 PM
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Quote:
Originally Posted by BanditCPA View Post
I disagree..the benefit of the Roth is to have tax free earnings when you draw on it when you retire, but 20 years from now I'm sure that will change when the government is desperate for every nickle they can get. Take advantage of the tax savings now in my opinion.
Wow, you and Dave Ramsey should have a conversation.

More than a few of his articles on ROTH IRA: http://www.daveramsey.com/search/pro...earch=roth+ira

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post #18 of 27 (permalink) Old 05-07-2012, 06:22 PM
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The fact you're even thinking of retirement, have some money in the bank, and are managing it........ makes you better than 43% of Americans that have less than $1000 set aside for retirement.

Now that's friggin scary.
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post #19 of 27 (permalink) Old 05-07-2012, 08:28 PM
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I went with a 457B plan which is pre-tax. I need to lower my income bracket once I get married which will be in 1.5 months. I also have I.M.R.F through work which they match 4.5 % to equal 9% total in retirement.

I think I'm launching approximately 25% of my income plus the matched stuff from my job to retire early at 55 very comfortably. My future wife is also throwing money into a pre-tax program too. Saving now is always a great idea. I can withdraw my money as so as I terminate employment with my employer w/o penalty. I have to pay taxes when I take contributions but I avoid state taxes I believe. Overall it's a great plan to reduce taxable income.
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post #20 of 27 (permalink) Old 05-07-2012, 10:16 PM
 
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My work is planning on offering a Roth very soon, and I will probably split my contributions evenly between our 401k type plan and the Roth. I'm in the same boat as you age wise.

You should consider the tax rate you are paying now, and the tax rate you will pay in the future. I agree with most others that tax rates will probably go up in the future, but also keep in mind that you are probably in a lower tax bracket now then you will be once you retire since you are relatively early in your career. You may want to reevaluate your options every time you move into a different bracket or the tax code is rewritten since this would change the equation. And of course the whole idea of different types of accounts is to mitigate risks. It probably is not wise to put all your eggs in one basket since the fed could change tax law at any time.

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post #21 of 27 (permalink) Old 05-07-2012, 10:54 PM
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I've been anxiously waiting for TSP ROTH to kick off (TSP is for military and gov employees). For me it's a no brainer, with the deployments I'm definitely in the lower tax bracket now than I'll be after retiring from the military. Only thing I wish was that they matched any of my contributions
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post #22 of 27 (permalink) Old 05-08-2012, 08:57 AM Thread Starter
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all great info and help. thx
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post #23 of 27 (permalink) Old 05-08-2012, 09:59 AM
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For those that say that you will be in a higher tax bracket when you retire, how do you figure?

The way I see it, typically your tax rate is like a bell curve. Please enlighten me.

Greg

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post #24 of 27 (permalink) Old 05-08-2012, 10:18 AM
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With a Roth, the tax is paid NOW .... on income earned. ...... no income when withdrawn later.

With a traditional IRA ..... it is pre-tax now ..... claimed as income when withdrawn.

This raises your income during the withdrawal period .... and could raise your tax rate.



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post #25 of 27 (permalink) Old 05-08-2012, 10:23 AM
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True, but unless you are withdrawing it in a lump sum, a gradual withdrawal will most likely be lower per annum then your current income. The reason for this, is that your living expenses are just that and typically do not include the big whopper which is the mortgage.

Anyways, just my thoughts on this.

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post #26 of 27 (permalink) Old 05-08-2012, 11:57 AM
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Quote:
Originally Posted by gsd656 View Post
For those that say that you will be in a higher tax bracket when you retire, how do you figure?

The way I see it, typically your tax rate is like a bell curve. Please enlighten me.
* My kids will be adults

* I won't be going to school after retirement

* Won't have tax free income for months I am deployed.

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post #27 of 27 (permalink) Old 05-08-2012, 12:07 PM
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No reason to leave your company's 401k. It's free money. Stay with the company up to the match and then open a Roth to supplement any other savings you want.

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