Roth or IRA

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JD101
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Roth or IRA

Post by JD101 » Sat Oct 21, 2017 9:47 pm

I heard few financial advisors on radio suggesting to invest in ROTH. Most people are going to be in a 'lower tax bracket' upon retirement than while working. This is assuming the tax rates remain the same. Also, the other thing that may happen during retirement years is, you may move to a "no tax" state.
Given two scenarios 1. lower tax bracket 2. No state- tax ... If that be a case, wouldn't it be better to choose traditional IRA over ROTH?

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Johm221122
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Re: ROTH OR IRA

Post by Johm221122 » Sat Oct 21, 2017 9:51 pm


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Re: ROTH OR IRA

Post by samsoes » Sat Oct 21, 2017 9:54 pm

JD101 wrote:
Sat Oct 21, 2017 9:47 pm
I heard few financial advisors on radio suggesting to invest in ROTH. Most people are going to be in a 'lower tax bracket' upon retirement than while working. This is assuming the tax rates remain the same. Also, the other thing that may happen during retirement years is, you may move to a "no tax" state.
Given two scenarios 1. lower tax bracket 2. No state- tax ... If that be a case, wouldn't it be better to choose traditional IRA over ROTH?
Given the two scenarios, yes, a traditional IRA would be preferable to a Roth, assuming of course, that your MAGI qualifies for a Traditional IRA deduction. There's not much space there, when comparing to Roth MAGI phase-out.

(If you're referring to traditional 401(k) vs Roth 401(k), there should be no difference in contribution limits, etc., subject to the provisions of the plan.)

If your pre-tax (traditional) space is already saturated, then would a Roth make sense in the given scenarios.
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Re: ROTH OR IRA

Post by DSInvestor » Sat Oct 21, 2017 9:56 pm

JD101 wrote:
Sat Oct 21, 2017 9:47 pm
I heard few financial advisors on radio suggesting to invest in ROTH. Most people are going to be in a 'lower tax bracket' upon retirement than while working. This is assuming the tax rates remain the same. Also, the other thing that may happen during retirement years is, you may move to a "no tax" state.
Given two scenarios 1. lower tax bracket 2. No state- tax ... If that be a case, wouldn't it be better to choose traditional IRA over ROTH?
The rules for Traditional IRA are tricky. Traditional IRA contributions are not always deductible. If you are covered by an employer plan and have income that exceeds certain limits, you will not be allowed to take the TIRA deduction. See IRS page on IRA deduction limits: https://www.irs.gov/retirement-plans/ir ... ion-limits

If you cannot deduct Traditional IRA contributions but are eligible for Roth IRA contributions, Roth IRA contributions would be superior to non-deductible Traditional IRA contributions no matter what you tax bracket and state income tax situation.

The rules for 401k, 403b, 457b are easier. Traditional 401k, 403b 457b contributions are deductible no matter how high your income. If you're covered by a 401k, 403b and/or 457b plan, a good default plan would be to max out Traditional 401k/403b/457b and Roth IRA. This gives you some Roth IRA space while maximizing your pre-tax contributions.
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JD101
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Re: ROTH OR IRA

Post by JD101 » Sat Oct 21, 2017 10:19 pm

Sounds like I should provide some more info.
I'm talking about 401(K) through employment. My employer offers traditional as well as Roth 401(k). My house hold income is below the threshold so my contributions are deductible.

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FiveK
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Re: ROTH OR IRA

Post by FiveK » Sun Oct 22, 2017 1:15 am

JD101 wrote:
Sat Oct 21, 2017 9:47 pm
Given two scenarios 1. lower tax bracket 2. No state- tax ... If that be a case, wouldn't it be better to choose traditional IRA over ROTH?
Yes, if by "lower tax bracket" you mean "lower marginal tax rate." Either lower federal or state rates may make this true.
If you have a pension, or have accumulated a very high traditional balance, or are in just the wrong situation that causes high marginal rates due to taxation of Social Security benefits, then Roth might be better.

You really have to look at your own situation, because rules of thumb in this area have many qualifiers. The simplest rule of thumb is "for most people, traditional will be better". See the wiki entry linked in another post for more.

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Re: ROTH OR IRA

Post by Johm221122 » Sun Oct 22, 2017 2:02 am

JD101 wrote:
Sat Oct 21, 2017 10:19 pm
Sounds like I should provide some more info.
I'm talking about 401(K) through employment. My employer offers traditional as well as Roth 401(k). My house hold income is below the threshold so my contributions are deductible.
You would get better answer if you use
Asking portfolio question format
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Re: ROTH OR IRA

Post by my name » Sun Oct 22, 2017 8:48 am

If I were younger, today, I'd put the money in a Roth. You don't know exactly what will be in 20 years down the road (or 1 day). However, when you retire you will likely have pension, income from dividends and interest, social security (if you delay until age 70, you can have big SS with 85% as income that is taxed), and at age 70.5 you will have required minimum distributions. If you did well in your working years and saved well, and the market did well, these income numbers can be huge. The SS and RMD numbers are the surprise. You could be in a (much) higher tax bracket. Don't necessarily assume you will be in a lower bracket.

Do as suggested above, tell us more about yourself. When I was younger there was no Roth, and education when Roth began was light. Study up.

For Roth conversions later in life, you also need to consider the value, or not, of a Roth if you have no heirs - one CFP yelled at me, you don't want Roth conversions now, you have no heirs (well, charity). And consider that the value of using a Roth, paying tax now versus later, may take too many years to play out to be worth your time.

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Re: ROTH OR IRA

Post by Johm221122 » Sun Oct 22, 2017 8:56 am

my name wrote:
Sun Oct 22, 2017 8:48 am
If I were younger, today, I'd put the money in a Roth. You don't know exactly what will be in 20 years down the road (or 1 day). However, when you retire you will likely have pension, income from dividends and interest, social security (if you delay until age 70, you can have big SS with 85% as income that is taxed), and at age 70.5 you will have required minimum distributions. If you did well in your working years and saved well, and the market did well, these income numbers can be huge. The SS and RMD numbers are the surprise. You could be in a (much) higher tax bracket. Don't necessarily assume you will be in a lower bracket.

Do as suggested above, tell us more about yourself. When I was younger there was no Roth, and education when Roth began was light. Study up.

For Roth conversions later in life, you also need to consider the value, or not, of a Roth if you have no heirs - one CFP yelled at me, you don't want Roth conversions now, you have no heirs (well, charity). And consider that the value of using a Roth, paying tax now versus later, may take too many years to play out to be worth your time.
One thing about paying taxes in retirement,you are doing good,on other hand if something goes terribly wrong having a traditional ira will mean you have more because you haven't paid taxes

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Re: ROTH OR IRA

Post by JD101 » Sun Oct 22, 2017 12:34 pm

When you are just starting to earn(younger) makes sense to invest in IRA as you are in a lower bracket(perhaps 15%) and 40 yrs down the road, the chances are that the taxes are going to go high. If you can lock your tax rates at 15% , there is nothing like it. May be in the middle years, you may want to invest in traditional IRA. Now you have mix of roth and traditional and you can play with it when you retire. This also will give you flexibility on RMD withdrawals. What do you guys think?

Let's say I am invested in STAR fund in traditional IRA, now If I want to invest in ROTH in the same fund, can I do so and they will keep track of what was invested through ROTH and what was invested through traditional or I will need to open separate STAR ROTH IRA?

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FiveK
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Re: ROTH OR IRA

Post by FiveK » Sun Oct 22, 2017 12:46 pm

JD101 wrote:
Sun Oct 22, 2017 12:34 pm
Let's say I am invested in STAR fund in traditional IRA, now If I want to invest in ROTH in the same fund, can I do so and they will keep track of what was invested through ROTH and what was invested through traditional or I will need to open separate STAR ROTH IRA?
You need separate accounts: one (or more) for Roth, and one (or more) for traditional. Within those accounts you may invest in whatever funds you wish.

JD101
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Re: ROTH OR IRA

Post by JD101 » Fri Oct 27, 2017 7:34 pm

If you are not investing pre-taxed dollars, those dollars get taxed not only by federal govt but also by state Govt if you are residing in state where it is not tax free. That means investing in 401K/IRA will save you not only on federal taxes but also on state taxes.

When you retire and you happen to be in lower tax bracket/retire in a zero tax state then in that case investing in regular IRA makes sense over ROTH. Correct?

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Re: ROTH OR IRA

Post by TropikThunder » Fri Oct 27, 2017 8:52 pm

JD101 wrote:
Fri Oct 27, 2017 7:34 pm
If you are not investing pre-taxed dollars, those dollars get taxed not only by federal govt but also by state Govt if you are residing in state where it is not tax free. That means investing in 401K/IRA will save you not only on federal taxes but also on state taxes.

When you retire and you happen to be in lower tax bracket/retire in a zero tax state then in that case investing in regular IRA makes sense over ROTH. Correct?
Careful with the terminology, you seem to be mixing things up. There are traditional and Roth IRAs (individual) and there are traditional and Roth 401ks (through an employer). Investing in a traditional account (whether 401k or IRA) is better if taxes during contribution phase are higher than during withdrawal. Roth is better if the reverse is true. Prudence would suggest a mix, since while one knows their current rate (well they certainly should know it!) one cannot predict future rates. I myself contribute to a traditional 403b and a Roth IRA.

ETA: Oh, just a nit pick of some including me: Roth isn't all caps, it's someone's name (Sen. William Roth, who wrote the legislation with Sen. Bob Packwood).

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Re: Roth or IRA

Post by LadyGeek » Fri Oct 27, 2017 10:18 pm

I removed some off-topic posts. As a reminder, see: Politics and Religion
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Re: ROTH OR IRA

Post by LadyGeek » Fri Oct 27, 2017 10:24 pm

TropikThunder wrote:
Fri Oct 27, 2017 8:52 pm
...ETA: Oh, just a nit pick of some including me: Roth isn't all caps, it's someone's name (Sen. William Roth, who wrote the legislation with Sen. Bob Packwood).
It's in the wiki: Roth IRA, 2nd paragraph.
Named after US Senator William Roth, Roth IRAs were established by the Taxpayer Relief Act of 1997.
I fixed the capitalization in the thread title.

(I also fixed the text color in the OP- it's hard to read.)
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JD101
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Re: ROTH OR IRA

Post by JD101 » Sat Oct 28, 2017 8:36 am

TropikThunder wrote:
Fri Oct 27, 2017 8:52 pm


Careful with the terminology, you seem to be mixing things up. There are traditional and Roth IRAs (individual) and there are traditional and Roth 401ks (through an employer). Investing in a traditional account (whether 401k or IRA) is better if taxes during contribution phase are higher than during withdrawal. Roth is better if the reverse is true. Prudence would suggest a mix, since while one knows their current rate (well they certainly should know it!) one cannot predict future rates. I myself contribute to a traditional 403b and a Roth IRA.
I think you are confusing terminology. Whether individual or employer sponsored, ROTH is synonymous with post tax investment and IRA/401K with pre-taxed PERIOD. As far as ROTH in cap is an individual choice, I like to make sure there is no confusion when making a point more than worrying about whether it is some senator introduced the bill or not. Why do people write IRA and not ira? why don't we write 401K as 401k? All stupid nuances with ones opinion and not worth spending time on. The goal should be how to retire without financial worries. :moneybag

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FiveK
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Re: ROTH OR IRA

Post by FiveK » Sat Oct 28, 2017 11:35 am

JD101 wrote:
Sat Oct 28, 2017 8:36 am
Whether individual or employer sponsored, ROTH is synonymous with post tax investment and IRA/401K with pre-taxed PERIOD.
Perhaps in your mind, but in general that statement is not correct. TropikThunder's factual statements were correct.

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Re: ROTH OR IRA

Post by my name » Sat Oct 28, 2017 11:41 am

TropikThunder wrote:
Fri Oct 27, 2017 8:52 pm
... Investing in a traditional account (whether 401k or IRA) is better if taxes during contribution phase are higher than during withdrawal. Roth is better if the reverse is true.
To note, many recent retirees were surprised by the large income generated by delayed social security and RMDs, on top of dividends/income, pensions, etc. This generation did not have Roth until recently and not great education when they began. Today there is more to help you in making decisions. I find Turbo Tax is a great "what if" tool.

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Re: ROTH OR IRA

Post by TropikThunder » Sat Oct 28, 2017 12:56 pm

JD101 wrote:
Sat Oct 28, 2017 8:36 am
TropikThunder wrote:
Fri Oct 27, 2017 8:52 pm
Careful with the terminology, you seem to be mixing things up. There are traditional and Roth IRAs (individual) and there are traditional and Roth 401ks (through an employer). Investing in a traditional account (whether 401k or IRA) is better if taxes during contribution phase are higher than during withdrawal. Roth is better if the reverse is true. Prudence would suggest a mix, since while one knows their current rate (well they certainly should know it!) one cannot predict future rates. I myself contribute to a traditional 403b and a Roth IRA.
I think you are confusing terminology. Whether individual or employer sponsored, ROTH is synonymous with post tax investment and IRA/401K with pre-taxed PERIOD. As far as ROTH in cap is an individual choice, I like to make sure there is no confusion when making a point more than worrying about whether it is some senator introduced the bill or not. Why do people write IRA and not ira? why don't we write 401K as 401k? All stupid nuances with ones opinion and not worth spending time on. The goal should be how to retire without financial worries. :moneybag
It's called an "IRA" because it's an acronym for "Individual Retirement Account", and acronyms are capitalized. It's called a "401k" because that's the section of the tax code that addresses this type of tax-advantaged retirement account. There is no "401K" section in the tax code. Typing "ROTH" out of individual choice does not make it correct. It's a person's name, not an acronym. I don't get the hostility regarding using consistent language, especially from someone who likes to "make sure there is no confusion when making a point".

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Re: ROTH OR IRA

Post by TropikThunder » Sat Oct 28, 2017 12:59 pm

my name wrote:
Sat Oct 28, 2017 11:41 am
TropikThunder wrote:
Fri Oct 27, 2017 8:52 pm
... Investing in a traditional account (whether 401k or IRA) is better if taxes during contribution phase are higher than during withdrawal. Roth is better if the reverse is true.
To note, many recent retirees were surprised by the large income generated by delayed social security and RMDs, on top of dividends/income, pensions, etc. This generation did not have Roth until recently and not great education when they began. Today there is more to help you in making decisions. I find Turbo Tax is a great "what if" tool.
Good point. A reaction to Roths sometimes is, "well tax now or tax later, I don't see how it makes any difference." It must have been even worse when they first came out in 1989 and no one had any experience with them. Plus, things can always change in the future, which is another reason to have a mix of account types (especially since Roth accounts don't currently have RMDs). Then again, having a high-enough income in retirement to get bumped into a high tax bracket is not all bad. :beer

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