Have funds in IRA, should I open a Roth?

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Topic Author
NSW1
Posts: 15
Joined: Mon Apr 15, 2013 4:18 am

Have funds in IRA, should I open a Roth?

Post by NSW1 »

I have about 34k in an IRA with the two funds VSMGX and VGSTX. I opened the IRA when I first got into investing and Vanguard was my first investment account.

I am pretty happy with these two funds, but I believe I have erred in putting more money into these funds, and not putting them into a ROTH, for tax reasons. I don't know exactly how to find out if it would benefit me to open a ROTH for these funds, or keep them in the IRA?

Age: 27
Income: 35k
Single
jimkinny
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Joined: Sun Mar 14, 2010 1:51 pm

Re: Have funds in IRA, should I open a Roth?

Post by jimkinny »

I decided to just suggest you read this:

http://www.investopedia.com/articles/re ... 012203.asp

Article is "Roth vs Traditioanl IRA....."

jim
placeholder
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Re: Have funds in IRA, should I open a Roth?

Post by placeholder »

Your question is a bit confusing because the funds you want to hold don't have much to do with the Roth or TIRA situation so the main ones are whether you can deduct the TIRA contributions and what your marginal tax rate are.
Laura
Posts: 7975
Joined: Mon Feb 19, 2007 6:40 pm

Re: Have funds in IRA, should I open a Roth?

Post by Laura »

What is your tax rate today? You can convert this money to a roth if you want but that will be a taxable event for you. If you are in a low tax bracket and are young this could make sense.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
Topic Author
NSW1
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Joined: Mon Apr 15, 2013 4:18 am

Re: Have funds in IRA, should I open a Roth?

Post by NSW1 »

Ok, sorry about the confusion.

The link verified what I was asking, which basically was how to tell which IRA would be the best choice, and I found out that if my tax rate would be higher at retirement, the ROTH would be best and vice versa. I might end up rolling into a ROTH.

I am in the 15% bracket right now I believe.

With vanguard, can I sinply open a ROTH when I have my TIRA with them? Or does it have to be one or the other?
Laura
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Joined: Mon Feb 19, 2007 6:40 pm

Re: Have funds in IRA, should I open a Roth?

Post by Laura »

At a 15% tax rate the roth makes more sense. Open the roth directly with Vanguard. If you haven't made your 2014 contribution yet you can do so now. If you have, you can make the 2015 contribution on January 1. You can also convert your existing traditional IRA into the roth at Vanguard. That could become a taxable event if you convert too much so you might want to hurry and convert 50% of your existing IRA before the end of the calendar year then the other 50% at the beginning of 2015. That will give you tax free growth for decades and will leave you with just one account to manage. If you have no other investment account, you can use one of the Vanguard Target Retirement funds as the one fund inside the roth.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
Topic Author
NSW1
Posts: 15
Joined: Mon Apr 15, 2013 4:18 am

Re: Have funds in IRA, should I open a Roth?

Post by NSW1 »

Laura thank you for the information! And everyone else who replied, much appreciated.
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Watty
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Re: Have funds in IRA, should I open a Roth?

Post by Watty »

This board may be a bit biased towards high income people. The 15% tax bracket doesn't make the Roth an easy of a choice if you will likely have somewhat average income needs when you are retired and will likely be married.

For example with Taxcaster an over 65 couple with $25,000 in income and $30,000 in Social Security will only pay $633 in federal taxes even though they have $55K in combined income which could be enough for a comfortable retirement in many areas especially if they have a paid off house.

https://turbotax.intuit.com/tax-tools/c ... taxcaster/
Last edited by Watty on Sun Dec 21, 2014 1:55 pm, edited 1 time in total.
Laura
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Re: Have funds in IRA, should I open a Roth?

Post by Laura »

True on the roth vs traditional discussion. Given his age I assumed he was early in his earnings lifecycle and would likely see an increase in income and taxes in future years.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
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