Rate of Return on Roth IRA's

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Topic Author
TheDev
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Re: Rate of Return on Roth IRA's

Post by TheDev »

ok, so this means I'm going to have to decide how much to put into each the traditional and Roth IRA... :annoyed

let's talk about strategies for which one to invest more in and why.

Wouldn't you make more money if you just chose one or the other and put all 5k into one, so that more would compound over time?
rr2
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Re: Rate of Return on Roth IRA's

Post by rr2 »

TheDev wrote:ok, so this means I'm going to have to decide how much to put into each the traditional and Roth IRA... :annoyed

let's talk about strategies for which one to invest more in and why.

Wouldn't you make more money if you just chose one or the other and put all 5k into one, so that more would compound over time?
Depends on your marginal tax bracket. If it is low at present, put it all into a Roth IRA.
Topic Author
TheDev
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Re: Rate of Return on Roth IRA's

Post by TheDev »

rr2 wrote:
TheDev wrote:ok, so this means I'm going to have to decide how much to put into each the traditional and Roth IRA... :annoyed

let's talk about strategies for which one to invest more in and why.

Wouldn't you make more money if you just chose one or the other and put all 5k into one, so that more would compound over time?
Depends on your marginal tax bracket. If it is low at present, put it all into a Roth IRA.
my annual salary is currently 54k before taxes.
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tludwig23
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Re: Rate of Return on Roth IRA's

Post by tludwig23 »

TheDev wrote:Wouldn't you make more money if you just chose one or the other and put all 5k into one, so that more would compound over time?
No. Basic math.

But it is a lot simpler that way. If I were you, I'd put it all into a Roth. Other advantages, e.g., no Required Minimum Distributions (RMDs) to a Roth too. Also, easier to take money out of a Roth (without tax implications, penalties) if needed for an emergency.
That's what I do: I drink, and I know things. --Tyrion Lannister
retiredjg
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Re: Rate of Return on Roth IRA's

Post by retiredjg »

TheDev wrote:
rr2 wrote:
TheDev wrote:ok, so this means I'm going to have to decide how much to put into each the traditional and Roth IRA... :annoyed

let's talk about strategies for which one to invest more in and why.

Wouldn't you make more money if you just chose one or the other and put all 5k into one, so that more would compound over time?
Depends on your marginal tax bracket. If it is low at present, put it all into a Roth IRA.
my annual salary is currently 54k before taxes.
This type of question cannot be answered accurately in a vacuum. If you really want to know the answer, you need to post all the information requested in Asking Portfolio Questions (link at bottom of this message). Tax bracket is only one factor. Other factors include how much you are saving, the expense ratios in your 401k if you have one, debt and the interest rates on your debt, etc.
Topic Author
TheDev
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Re: Rate of Return on Roth IRA's

Post by TheDev »

retiredjg wrote:
TheDev wrote:
rr2 wrote:
TheDev wrote:ok, so this means I'm going to have to decide how much to put into each the traditional and Roth IRA... :annoyed

let's talk about strategies for which one to invest more in and why.

Wouldn't you make more money if you just chose one or the other and put all 5k into one, so that more would compound over time?
Depends on your marginal tax bracket. If it is low at present, put it all into a Roth IRA.
my annual salary is currently 54k before taxes.
This type of question cannot be answered accurately in a vacuum. If you really want to know the answer, you need to post all the information requested in Asking Portfolio Questions (link at bottom of this message). Tax bracket is only one factor. Other factors include how much you are saving, the expense ratios in your 401k if you have one, debt and the interest rates on your debt, etc.
From what I know off the top of my head...
$65k of student loan debt at 6.35%
saving: $6,000
not sure about the expense ratio on my 401k
I am contributing 6% of my salary to the 401k, up to the company match

I am mainly concerned about paying all my debt as soon as possible, and I'm living with family now in order to minimize expenses and make large payments on my loans.
rr2
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Re: Rate of Return on Roth IRA's

Post by rr2 »

retiredjg wrote:
TheDev wrote:
rr2 wrote:
TheDev wrote:ok, so this means I'm going to have to decide how much to put into each the traditional and Roth IRA... :annoyed

let's talk about strategies for which one to invest more in and why.

Wouldn't you make more money if you just chose one or the other and put all 5k into one, so that more would compound over time?
Depends on your marginal tax bracket. If it is low at present, put it all into a Roth IRA.
my annual salary is currently 54k before taxes.
This type of question cannot be answered accurately in a vacuum. If you really want to know the answer, you need to post all the information requested in Asking Portfolio Questions (link at bottom of this message). Tax bracket is only one factor. Other factors include how much you are saving, the expense ratios in your 401k if you have one, debt and the interest rates on your debt, etc.
I agree with retiredjg. This will be a great exercise and you will find it very useful. Spend some time doing this.
retiredjg
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Re: Rate of Return on Roth IRA's

Post by retiredjg »

TheDev wrote:
retiredjg wrote:
TheDev wrote:
rr2 wrote:
TheDev wrote:ok, so this means I'm going to have to decide how much to put into each the traditional and Roth IRA... :annoyed

let's talk about strategies for which one to invest more in and why.

Wouldn't you make more money if you just chose one or the other and put all 5k into one, so that more would compound over time?
Depends on your marginal tax bracket. If it is low at present, put it all into a Roth IRA.
my annual salary is currently 54k before taxes.
This type of question cannot be answered accurately in a vacuum. If you really want to know the answer, you need to post all the information requested in Asking Portfolio Questions (link at bottom of this message). Tax bracket is only one factor. Other factors include how much you are saving, the expense ratios in your 401k if you have one, debt and the interest rates on your debt, etc.
From what I know off the top of my head...
$65k of student loan debt at 6.35%
saving: $6,000
not sure about the expense ratio on my 401k
I am contributing 6% of my salary to the 401k, up to the company match

I am mainly concerned about paying all my debt as soon as possible, and I'm living with family now in order to minimize expenses and make large payments on my loans.
I'm sorry, but "off the top of my head" is just not good enough. :(

Read the format, do the work necessary to provide all the information, and people can help you with the big picture.

Right now you are wasting a lot of energy nibbling around the edges. You are not making much progress and you won't make any progress until you work at it a little bit and provide the requested information.

If you tell us the big picture, people can give you accurate and reasonable answers to all your little questions. But without the big picture, some of the answers you are getting to your individual questions may not even apply to your situation, but you won't know it and go headed off in the wrong direction.

An example is what you said about having to decide now how much to put in tIRA and how much to put in Roth IRA. That is probably a bad idea. That's just one example. There are plenty of others.

Do the work. Post your information. Get help you can depend on rather than answers that may or may not apply to you.
Topic Author
TheDev
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Re: Rate of Return on Roth IRA's

Post by TheDev »

I don't know all of that information. I'll probably just hold off until April and then go ahead with the Roth.

Also, the majority of the info they are requesting there is dealing with investments. The only thing I have for investments right now would be my 401k.
retiredjg
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Re: Rate of Return on Roth IRA's

Post by retiredjg »

TheDev wrote:I don't know all of that information.
Why can't you find out the things you don't know? There is nothing requested there that you don't need to know, so you might as well start learning about it now. If you have a question about how to answer a question, just ask.
Also, the majority of the info they are requesting is dealing with investments. The only investment I have right now would be my 401k.
That just means you have less to post and fewer things that need to be fixed.
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grap0013
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Re: 8% Interest Rate on Roth IRA?

Post by grap0013 »

TheDev wrote: I didn't understand that before. Now, I do. The books I've been reading that mentioned Roth IRA's have apparently been missing some crucial information.
TheDev,

No offense, but you need to read some new books. Check out some of the books from the reading list on here http://www.bogleheads.org/readbooks.htm and then you can come back on Bogleheads and reread this thread to get a chuckle about some of your posts. (I mean this in the nicest way and it happens to everyone who sticks around here)

FWIW, the estimates of return I use for my portfolio are 8-12%.
There are no guarantees, only probabilities.
TA_Lurker
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Re: Rate of Return on Roth IRA's

Post by TA_Lurker »

TheDev wrote:I don't know all of that information. I'll probably just hold off until April and then go ahead with the Roth.

Also, the majority of the info they are requesting there is dealing with investments. The only thing I have for investments right now would be my 401k.
You can't make an informed decision without that information and you can't expect to receive solid advice here without providing that information. Digging up all that information and piecing it together is both a learning exercise and the most effective way to ask for help. Check out other threads in this sub-forum to see what I mean.

Take this thread for example: http://www.bogleheads.org/forum/viewtop ... st=1459772
Default User BR
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Re: 8% Interest Rate on Roth IRA?

Post by Default User BR »

grap0013 wrote:
TheDev wrote: I didn't understand that before. Now, I do. The books I've been reading that mentioned Roth IRA's have apparently been missing some crucial information.
No offense, but you need to read some new books.
I wouldn't necessarily assume that the fault lay with the books.


Brian
Topic Author
TheDev
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Joined: Sun Aug 05, 2012 1:42 pm

Re: 8% Interest Rate on Roth IRA?

Post by TheDev »

grap0013 wrote:
TheDev wrote: I didn't understand that before. Now, I do. The books I've been reading that mentioned Roth IRA's have apparently been missing some crucial information.
TheDev,

No offense, but you need to read some new books. Check out some of the books from the reading list on here http://www.bogleheads.org/readbooks.htm and then you can come back on Bogleheads and reread this thread to get a chuckle about some of your posts. (I mean this in the nicest way and it happens to everyone who sticks around here)

FWIW, the estimates of return I use for my portfolio are 8-12%.
[Inappropriate remarks removed by admin LadyGeek]
Last edited by TheDev on Thu Aug 09, 2012 6:54 pm, edited 1 time in total.
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grabiner
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Re: Rate of Return on Roth IRA's

Post by grabiner »

TheDev wrote:ok, so this means I'm going to have to decide how much to put into each the traditional and Roth IRA... :annoyed

let's talk about strategies for which one to invest more in and why.

Wouldn't you make more money if you just chose one or the other and put all 5k into one, so that more would compound over time?
No, because compounding multiplies money If you put $2500 each into two different accounts and invest them the same way, you will have the same total as if you put $5000 into a single account.

The reason to prefer one account over the other is the tax situation. If you put $3000 into your Roth IRA and invest at an 8% return for 40 years, you will have $65,174. If you put $4000 into a deductible traditional IRA in a 25% tax bracket, that only costs you $3000 because you get $1000 back in taxes. If you invest that at an 8% return for 40 years, you will have $86,898, but you will pay taxes when you withdraw the money. If you pay taxes at a rate of 25%, you will pay $21,724 in tax and have $65,174 after tax, so the traditional and Roth options are equally good. If you pay taxes at a rate of less than 25%, then you will have more than $65,174 after tax, so the traditional option is better.

If you aren't eligible for a deductible traditional IRA (because you are over the income limits), you can get the same benefit by investing in your 401(k), which is taxed the same way. However, in order for us to give you any advice on that, we need to know your 401(k) options. While the 401(k) is taxed the same way as an IRA, many 401(k) plans have poor choices and will probably have lower returns than similar investments in an IRA. (And conversely, no matter how bad your 401(k) is, you should get the employer match, as that is an instant 50% or 100% return on your money.)
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BigFoot48
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Re: Rate of Return on Roth IRA's

Post by BigFoot48 »

TheDev wrote:I'll probably just hold off until April and then go ahead with the Roth.
You should continue your 401k up to the company match, and put all of your other available funds against the student loan until it is paid off, as it's costing you $4,000 a year in interest. By the time you get that paid off you'll have IRA and Roths all figured out.
Retired | Two-time in top-10 in Bogleheads S&P500 contest; 15-time loser
Topic Author
TheDev
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Joined: Sun Aug 05, 2012 1:42 pm

Re: Rate of Return on Roth IRA's

Post by TheDev »

BigFoot48 wrote:
TheDev wrote:I'll probably just hold off until April and then go ahead with the Roth.
You should continue your 401k up to the company match, and put all of your other available funds against the student loan until it is paid off, as it's costing you $4,000 a year in interest. By the time you get that paid off you'll have IRA and Roths all figured out.
haha yeah that's what I was thinking. Just focus on paying off my debt for now so I can have lots of time to read all of grap0013's books. He has a portfolio with 8-12% after all :D
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grap0013
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Re: 8% Interest Rate on Roth IRA?

Post by grap0013 »

TheDev wrote:
grap0013 wrote:
TheDev wrote: I didn't understand that before. Now, I do. The books I've been reading that mentioned Roth IRA's have apparently been missing some crucial information.
TheDev,

No offense, but you need to read some new books. Check out some of the books from the reading list on here http://www.bogleheads.org/readbooks.htm and then you can come back on Bogleheads and reread this thread to get a chuckle about some of your posts. (I mean this in the nicest way and it happens to everyone who sticks around here)

FWIW, the estimates of return I use for my portfolio are 8-12%.
[inappropriate remarks removed by admin LadyGeek]
Hey that was my first post on this thread and I said things like, "No offense" and "I mean this in the nicest way..." I am honestly trying to help you.

You will obtain information much more efficiently and accurately by reading 2 or 3 of those books rather than this haphazard mish mash of info. this thread has quickly deteriated into.
There are no guarantees, only probabilities.
Topic Author
TheDev
Posts: 80
Joined: Sun Aug 05, 2012 1:42 pm

Re: Rate of Return on Roth IRA's

Post by TheDev »

grabiner wrote:
TheDev wrote:ok, so this means I'm going to have to decide how much to put into each the traditional and Roth IRA... :annoyed

let's talk about strategies for which one to invest more in and why.

Wouldn't you make more money if you just chose one or the other and put all 5k into one, so that more would compound over time?
No, because compounding multiplies money If you put $2500 each into two different accounts and invest them the same way, you will have the same total as if you put $5000 into a single account.

The reason to prefer one account over the other is the tax situation. If you put $3000 into your Roth IRA and invest at an 8% return for 40 years, you will have $65,174. If you put $4000 into a deductible traditional IRA in a 25% tax bracket, that only costs you $3000 because you get $1000 back in taxes. If you invest that at an 8% return for 40 years, you will have $86,898, but you will pay taxes when you withdraw the money. If you pay taxes at a rate of 25%, you will pay $21,724 in tax and have $65,174 after tax, so the traditional and Roth options are equally good. If you pay taxes at a rate of less than 25%, then you will have more than $65,174 after tax, so the traditional option is better.

If you aren't eligible for a deductible traditional IRA (because you are over the income limits), you can get the same benefit by investing in your 401(k), which is taxed the same way. However, in order for us to give you any advice on that, we need to know your 401(k) options. While the 401(k) is taxed the same way as an IRA, many 401(k) plans have poor choices and will probably have lower returns than similar investments in an IRA. (And conversely, no matter how bad your 401(k) is, you should get the employer match, as that is an instant 50% or 100% return on your money.)
Alright, so since I'm paying taxes at the 25% rate, the Roth would be the better option for me. Ok, I will start that either in April 2013 or April 2014 depending upon how I feel about my debt situation at those points.
retiredjg
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Re: 8% Interest Rate on Roth IRA?

Post by retiredjg »

TheDev wrote:That is the whole point of me asking these questions and trying to learn more information.
If that is true, you need to do what people have mentioned several times.
  • -Do some research on your own. A lot of your questions could be answered by a 5 minute internet search. And the Wiki has an incredible amount of information.

    -Also, post your information so you can actually get some help that applies to your situation.
You have had dozens of people offering to help, but you have not provided enough information to actually get any help. This will sound harsh, but it feels to me (and apparently others) that you want other people to do all the work and you don't want to do any yourself.
You also absolutely fail to take into account....
What you fail to see is how much trouble people have already go to for your benefit when there was no possibility of receiving a benefit back. Now you accuse them of being snobs? Why would a snob even bother to try to help you out? It simply doesn't make sense.
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grap0013
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Re: Rate of Return on Roth IRA's

Post by grap0013 »

TheDev wrote:
BigFoot48 wrote:
TheDev wrote:I'll probably just hold off until April and then go ahead with the Roth.
You should continue your 401k up to the company match, and put all of your other available funds against the student loan until it is paid off, as it's costing you $4,000 a year in interest. By the time you get that paid off you'll have IRA and Roths all figured out.
haha yeah that's what I was thinking. Just focus on paying off my debt for now so I can have lots of time to read all of grap0013's books. He has a portfolio with 8-12% after all :D
I'm starting to rue the day I entered this thread. I'm half joking.

This guy is pretty smart and I'm somewhat confident that you can find some numbers on here between 8 and 12. He'll also be the first to tell you that these estimates are a little conservative. http://www.portfoliosolutions.com/the-p ... -for-2012/
There are no guarantees, only probabilities.
Topic Author
TheDev
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Re: 8% Interest Rate on Roth IRA?

Post by TheDev »

grap0013 wrote:
TheDev wrote:
grap0013 wrote:
TheDev wrote: I didn't understand that before. Now, I do. The books I've been reading that mentioned Roth IRA's have apparently been missing some crucial information.
TheDev,

No offense, but you need to read some new books. Check out some of the books from the reading list on here http://www.bogleheads.org/readbooks.htm and then you can come back on Bogleheads and reread this thread to get a chuckle about some of your posts. (I mean this in the nicest way and it happens to everyone who sticks around here)

FWIW, the estimates of return I use for my portfolio are 8-12%.
[inappropriate remarks removed by admin LadyGeek]
Hey that was my first post on this thread and I said things like, "No offense" and "I mean this in the nicest way..." I am honestly trying to help you.

You will obtain information much more efficiently and accurately by reading 2 or 3 of those books rather than this haphazard mish mash of info. this thread has quickly deteriated into.
I am currently reading The Bogleheads Guide to Investing, which is on your list. I am also reading 2 other books on investing which are not on your list. I am also reading posts and contributing in conversations on this board. Most people my age (25) don't know much about investing and are making poor financial decisions, so I believe that beginning investors should be welcomed into the conversation, rather than shut out of it based upon what they currently do not know, but are willing to learn.
Topic Author
TheDev
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Joined: Sun Aug 05, 2012 1:42 pm

Re: 8% Interest Rate on Roth IRA?

Post by TheDev »

retiredjg wrote:
TheDev wrote:That is the whole point of me asking these questions and trying to learn more information.
If that is true, you need to do what people have mentioned several times.
  • -Do some research on your own. A lot of your questions could be answered by a 5 minute internet search. And the Wiki has an incredible amount of information.

    -Also, post your information so you can actually get some help that applies to your situation.
You have had dozens of people offering to help, but you have not provided enough information to actually get any help. This will sound harsh, but it feels to me (and apparently others) that you want other people to do all the work and you don't want to do any yourself.
You also absolutely fail to take into account....
What you fail to see is how much trouble people have already go to for your benefit when there was no possibility of receiving a benefit back. Now you accuse them of being snobs? Why would a snob even bother to try to help you out? It simply doesn't make sense.
Actually, I have received plenty of helpful advice even with the supposedly inadequate information that I provided. I was not calling the helpful people snobs. Only the people who focus on trying to show how great they think they are at investing rather than offering any meaningful help.
retiredjg
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Re: 8% Interest Rate on Roth IRA?

Post by retiredjg »

TheDev wrote:Actually, I have received plenty of helpful advice even with the supposedly inadequate information that I provided.
You have also received advice that is inappropriate for your situation. Do you know which is which?
I was not calling the helpful people snobs. Only the people who focus on trying to show how great they think they are at investing rather than offering any meaningful help.
I think you jumped to the wrong conclusion about the intent of grap0013's post. I think it is really unfortunate that you read it that way. :(
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Re: Rate of Return on Roth IRA's

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