Whos There: Miss Iras Back

There is nothing stopping them from doing so. The thing that would stop them is that it would hurt the middle class, the ones that are able to contribute to a ROTH. You have made the argument several times on this page that the future tax rates on middle class income will most likely not increase because that is the class that has the strongest voting power. Which is why anybody who contributes to a Roth in fear of higher taxes is seriously misinformed. You misunderstood his comment. His point was that the government would never tax the Roth because it would hurt the middle class.

Does this not follow the logic of your assumptions? That was exactly what I was getting at. The Roth would have an after tax value of that amount, but the others would be worth 1-T with T being your tax rate. I hope that is coherent enough to get the idea across. While that is true, what are the odds you will have higher income in retirement than your highest earning years? So if you take that away, then rates have to be increased across the board, rather than you jumping up a rate. As long as we get to vote, we will never vote for someone to increase our tax rates. Good luck generating capital 50X your average annual lifetime income at that rate!

The point of investing is to have a majority of your money come from the interest not your contributions. So the traditional IRA taxes that too, the majority of the money you made for retirement??? First off, a Roth is fine for someone in the lower tax brackets. Plus, in retirement, you can move to a state that will not tax your retirement benefits. So you could be getting the same tax-free treatment by the state for your trad. IRA as you could had you contributed to a Roth. Also, your income will most likely be much less in retirement, so you will very likely be at a lower tax bracket.

Holly, I think you just reiterated everything I just wrote in my post! Thanks for your thoughts though! Enjoyed this post, FS! Why would you say that it is doing nothing for you? The wisdom of whether or not to invest in a Roth is now in your rear view mirror. I would suggest that pulling your money out would be a major error. Why not invest wisely and let it grow tax free?

You might be right Evan! Managing Ks and IRAs are big business! Fidelity and Vanguard are cleaning up. Evan, bad idea on maximizing the Traditional and then the k. Well it is even more complicated than that. If you are a covered employee things even get a bit more complicated on deductible IRA Contributions, I was just making an abstract point on the k fee issues while agreeing with Sam about the Roth.

I wonder if by throwing social security into the mix, your conclusions would be different. It would seem that if one had a large traditional IRA and was taking distributions, those distributions would be taxable, and if the amount was sufficient enough, it would make at least a portion of the social security taxable as well. That would not be the case if one had instead, that same amount in a Roth IRA. However, the federal tax rates are at their lowest level in more than 50 years.

I think the tax rates may go up in the future when US economy is getting better. I think contributing to Roth IRAs make more sense to young people. Roth IRAs can be served as a buffer. I always want to save more for retirement besides k , but I afraid that I may need that money later on. Indeed, I have an emergency fund that covers 6 months living expenses, and regular online broker account with few thousands dollar in it. It should be better than cashing out from k or traditional IRA. You bring a good viewpoint on your fear of your money being locked up in your K. You can borrow from your K at an interest rate you pay yourself back at.

If you have a 6 month EF, you should be fine. Unemployment benefits in America are pretty good! Of course, if he decided to quit his job to open up that new business, the ability borrow via the k is gone. Also, if he borrowed from the k while working at that job to start up a side gig, and then later decided to quit his job to pursue his dream and still had an outstanding k loan balance, and was unable to repay that loan, then that entire loan amount would immediately be classified as a distribution and taxes and assuming he is under And those numbers can be a bit brutal.

Sam, I agree with you that Uncle Sam knows how to get your money now or later. If you do math, you will see that the compounding power of after tax money can make you rich in years. Remember, you squirrel away only 5K and assume as if it never existed. You make a compelling argument, Sam. Will help a young person to learn how to invest their money. The Roth IRA has its downfalls, but I still think it is a good tool for you to use in your retirement toolbox. Yes, good point about the K management fee, which is not clearly delineated how much.

But, these are both not bad choices. You can pay them now, or pay them later. Either way, they will be wasting our tax dollars. You are certainly in the minority — everyone out there is touting the benefits of a the Roth. Everything is just an opinion, ie you think taxes will not go up. I have no idea where taxes will go, so I use the Roth to diversify against this. With that being said, I think a k is often under utilized. Once you pay taxes to the government, you can never get them back! At least with k contributions you are deferring your taxes until a later time.

I read through all the comments and it seems like you really hate how the government wastes your money! I agree, but do you think this will get better over time? You will have to pay taxes eventually right? I like your argument, but not sure it can be used in this case, or am I missing something? I have dealt with a number of people who, upon reaching They do not want nor need the money but must in order to avoid a penalty. If I am Wow, someone not drinking the Roth IRA kool-aid?

Imagine that in this blug-o-sphere. And I think having some diversification is nice. One point you missed about them being the same if tax brackets are the same at contribution and distribution is you have more money to invest if you go the traditional route. We did a whole post on this, and even have a spreadsheet you can see all the different options of where to put your money.

Also, I agree with the tax rates on the middle class. We also did a whole post on how the tax system works and tax rates marginal and effective, before deductions back to I personally think it will go unchanged for the middle class. But, we all get to decide for ourselves.

I think Roth IRAs still make sense for high income earners since the income limit for conversion was removed in Conversion and contribution are different. Not sure I understand your comment. High earners are the only group that does well on Roth IRAs. First max out your k, including over 50 extra amount. You will not get any deductions. Stuff it into a money market for a week. Then convert to your Roth IRA.

You evade the income limits and get free in the future. The financial recession even helped out on my conversion of my legacy IRA. I converted at the valley in stock values, moving all the appreciation that subsequently occurred into the tax free side and paid very little tax at conversion. One advice note is high income earners need to avoid natural tendency to roll k to IRA after leaving firm. That action limits benefits of conversion because you have to do a pro rata of all IRAs. My firm allows me to leave money in a non-IRA k type account, still invested.

Still get to enjoy the tax advantages. I currently live in Texas where there is no state income tax, and it is very possible that I would move to a state with income tax after retiring all of my family is in PA. Though ofcourse by then I may be really settled here. Still thinking through the post and comments. That is a good point. I would never give up Texas residency if I have established it. These are hardly middle class numbers. For the record I have both a k and a Roth.

I will have two pensions upon retirement and it is quite possible that my AGI at that time will exceed my current AGI. The Roth will allow me flexibility in how I take distributions and enhance my ability to control my overall tax burden. And if so, at what percentage does it make discrimination wrong?

What I proposed, and stand by, is that a year out — say, April 9, , the 10 year will not be below 2. I stated a year out because you said nobody can predict the future. So you want me to spot you 22 basis points? Here is my initiat statement verbatim: My comment was March 30, so this would mean on March 30, , the rate is either over or under 2.

Obviously the odds are much changed in that scenario. Surely you can see the difference, no? Are you seriously still not understanding the difference? Let me put this in perspective of something you should understand. You cited the performance at the end of the year as evidence that your prediction was accurate, right? If you said over under on 2. LOL Kept it simpler though. My tax site is more for beginners, so I wrote about contribution limits and deadlines. A Roth will be good for me. I max out my contributions yearly by saving half of my gross income and putting that in a K Roth and a Roth.

I have done the math. Tax rates are unknowable, but if either possibilities of 1: I have control of my personal savings and am already to the point to have been advised by my CPA tax man to buy Roths. I am proud to contribute to my country, I just believe in not over-contributing. I think a Roth is good in certain situations. I managed to get quite a sum into my Roth without ever having to pay tax on the money because of the small amount of money I made during that time. When I went back to work full-time, I stopped converting because it no longer made sense because of the reasons you listed above.

I still contribute to my Roth currently, I make too much to get a tax deduction for a traditional. I will be using some of my extra income to go on some awesome trips in the near future though. Robyn, that is an excellent example of one of the many good uses for a Roth. You did the right thing. I find that the Roth is an excellent retirement plan account to supplement the 3 pillars of retirement income- K or other retirement plan , social security, and investment income.

Most of the 3 above spit out taxable income and can cause your social security to be taxed big bummer. By being able to withdraw tax free income and balance the other two, you can get more net income and pay less tax. To be fair to Obama, he had nothing to do with the lifting of the IRA conversion limit; that was done back in , by a Republican Congress under a Republican President.

I have a question about this article. How does the Roth K fit into this article, and what are your feelings about it for different ages and income levels? Thanks for taking my question. No job, no money. You provided me with some great perspectives and I wanted to get your input, if possible…. I agree with many of your statements, to the extent that they are intended for your target audience, which tends to earn well into the six figure arena as I understand it.

In the current horrible economy, however, there are a large number of investment savvy, educated, hard working, low income individuals. After my various deductions, with the tax credit available due to my qualifying Roth contributions, my effective tax rate is in the low single digits. It is reasonable to assume that in the future, my income will be many times greater than my current income.

Recommendations For Building Wealth

In the mean time, it makes sense to pay my near zero tax level on savings. I agree that my tax rate upon retirement is likely to be much lower than my tax rate at the peak of my career. It is unlikely, however, that my tax rate upon retirement will be as low as my rate now. For me, the use of a Roth IRA is very much about keeping my money out of the hands of the government. I make the bet that giving the government a a few points on the front end will save me from giving them many more on the back end.

In thirty years or so, I guess I will find out. Dan, thanks for your balanced response. Just a thought about what may be a significant difference between a Roth and Traditional. A traditional IRA and a k and a lot of annuities require you begin withdrawing at least a certain amount based off of your life expectancy.

I found the article Sam: Those withdrawals are calculated by dividing the total IRA balance as of Dec. You use a separate life-expectancy table in the same publication if your spouse is more than a decade younger than yourself and your sole heir. Some of your points are valid. Most are not, Roth k and k are not going to be the same.

You are going to be taxed at different rates throughout your entire career. It does not take a genius to figure this out. True, assuming that tax rates remain the same, and that is very, very unlikely. The odds of taxes going DOWN by the time you retire? Not good, so better to pay the tax now, at a known rate, than risk paying rates 2x or 3x higher. They will advise a Roth if it is an option. Locking in your tax-rate in retirement is an incredible option. The tax-free growth can be argued against with a time-value of money stance and the liklihood of a much weaker dollar, but the author does not even scratch the surface of the other benefits of a Roth incredible flexibility.

What would you prefer, a tax-free Roth or a taxable Traditional? The government and I want to thank you again for paying taxes up front to help our country. With such a big budget deficit, we need all the willing tax payers as we can! Spoken like a true Libertarian gold bug! See you in 4 years! Your anti-government brain is, to the detriment of your readers, drowning out your pro-investor brain!

In all but the most unrealistic scenarios, 5k that grows to k in a Roth in 25 years is worth a lot more than if it grows in a Traditional IRA. I have a question. I am wondering if i should max out my k or start an additional ira. Any help would be greatly appreciated as I am stuck on what I should do. I am wondering if its worth it to start a ira on the side from my k and max it out per year. My k is invested all in stocks. Non-Roth treats these items as the only tools in the retirement toolbox. Your arguments make sense for those who are under the cut-off limits but what if you can max out all of your tax-advantaged options?

Roth conversions then provide you with some options:. I am still trying to grasp the complexities of having multiple retirement accounts but what about:. This could impact the taxes on your social security and medicare premiums.

Disadvantages Of The ROTH IRA: Not All Is What It Seems

Perhaps I am missing something, but I think there are opportunities to use the ROTH wisely when and only when your pre-tax plans have been maxed out. I personally am against the income cut off limit, and also would rather use the small sum of money to invest in something other than stocks and bonds, but myself and my life. This is more more unfairness creeps in. One advisor suggested I cherry pick items that have declined and I expect to return. Always a pleasure to have discussions with you sir! Under current tax law, Roth k does not have any contribution restrictions.

Effectively there is currently no income restriction. It depends on what you think all future tax rates are going to be. If you think income tax rates go up in the future e. Obviously if you think a lot of waste, fraud, tax expenditures will be removed and the tax rates go down, then a Roth would be worse off. You are ignoring the effect of the business cycle on account balances.

It is tough to predict a recession before it happens, but the result is always the same — a drop in k balances. It is easy to know when you are in the middle of a recession. You could have been off by a month and still pay a much lower overall lower rate. Of course the caveat here is that you have to be employed and pay the conversion taxes as a lump sum. Also you are ignoring the estate tax. Paying taxes on income now will reduce the amount in the taxable estate.

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Obviously, this is only needed for accounts with balances that are much higher than average accounts. There is a contribution restriction for Roth k s: The catch-up contribution is the same as the Traditional. I played with mine this past year. After contributing a percentage to the Roth and recently concluding that it was not a good idea for me. As has been endlessly repeated in this thread, the math is the same assuming equal tax rates now and in retirement.

The people that deny that are at best being obstinate. Of course, that needs to be shifted down due amortization, I am just using that as an illustration. In states like California, they capture more of our money in fees, fines, state and local taxes anyway. Even in this economy, there are multiple state and local sales tax, and also property tax increases on the ballot. I think one big mistake I see people doing is confusing effective tax rates with marginal ones.

I work overseas and and pay no Federal income tax. Since I pay no tax up front. The next years may well continue stupid political bickering. Roth IRAs should remain one of the last vehicles that are grandfathered. Right now my ratio is about 1. So, instead of making a non-dedustible Traditional IRA contribution, it makes a lot more sense to make a non-deductible Roth contribution — at least my earnings grow tax-free! I have to pay the taxes upfront either way- why not reap the benefit of tax-free earnings and avoid paying Uncle Sam some more of my money?

Actually last year, my earnings phased me out of making a Roth contribution too. But I was not about to be cheated out of my tax-free earnings, so I made a non-deductible Traditional IRA contribution and then turned around and converted it to a Roth! As long as that loophole is available, I will be using it! The government recently removed the income limits for Roth conversions.

I agree with Jason, tax rates are going higher. Have you ever looked at historical tax rates? Current rates are amazingly low. Rates may not be headed much higher within the next two administrations, but I expect some reversion to the mean over the next years, and for people that are retiring in 30 years — you still have another 30 year time horizon. Roth is an excellent hedge. And we all know politicians at the federal level will never cut spending!! Plus, I expect to have a six figure income within ten years of coming back out of grad school, so this is most likely the lowest tax bracket I will ever be in again.

I believe a Roth is a good option for me. I am a 30 year old, highly educated low income earner. I fully expect that, with more experience, I will see my income grow by at least one order of magnitude through my career. I work with a small company at the moment, which has no k plan. Due to the current state of my income, my taxes are negligible, and I can still take a tax credit for my roth contributions, which exceeds the benefits of deducting the money, and provides the added bonus of tax savings later.

If you are in the lowest tax brackets and expect a decent increase in income, then go for it! Keep on saving and never deviate from the plan! I am a glass half-full optomist and will not do that. At a time when my wife and I were in the K range, we were putting in allotments every year. I see no flaw other than my money being trapped til retirement. The Fed will get some obviously, but far less at least. As a CPA I am asked this question a lot. If you are going to be in a similar tax bracket after retirment than while working, then the Roth is the better deal. Remember, IRA distributions are taxed as ordinary income, not capital gains.

And to add to that misery, if you die, there is no step up in basis. You would have been better over never opening that IRA. The only way to lower your taxes in retirement where I am now is to have both types of savings Roth and non-Roth. That way you can lower your tax base in retirement and enjoy a lower tax rate. Ok, so I am fairly new at looking into my retirement and trying to figure out if my thinking is in the right direction.

Given my current paycecks will be less by dollars per check it seems like it could be worth it.

Rules For The Traditional And Roth IRA Contributions

So I will be tryiing to maximize my pretax dollars, more for me less for them, and maximizing my company match. Is my thinking way off or is this something I should consider. Again this is all somewhat new to me even tho I be my k for about 10 yrs now. I appreciate all articles on IRAs because everyone brings something new and interesting to help demystify all of this. But your article is extremely biased and opinionated, not saying its not true, but if you really want to help people and let them decide for themselves, then the ONLY way to do that is to be neutral and give all the facts, positive ones too.

Paying tax on now is MUCH better than paying tax on that principal in the future when it will have grown. Say it doubles every 10 years, then in 40 years I am young and have that long till i retire you will have tax free 20, to withdraw. So, pay taxes on now for tax free 20,, or dont get taxed on , and instead get taxed on 20, I doubt that explanation was needed, you get the point. Do you agree with this? If not, please explain your side more because I missed something and I really want to understand all this.

Do the math and run scenarios to figure it out for yourself. So even if you are in a much higher tax bracket now than in retirement, the Roth still makes more sense due to your not having to pay any taxes on any of the capital gains. The advantage of tax free growth in my opinion makes it a higher priority than simply funding a taxable brokerage account…. If you are maxing the K, and have the privilege to contribute to the IRA not everybody does due to income , then max it out! One of the most confusing articles recently read. I can pass it on to my heirs tax free. First, I do agree that the limit on the Roth is dumb.

The limit on the IRA only applies to you if you participant in a k- otherwise, there is no income limit. If you die, your screwed anyway- your dead. The family, your heirs, are screwed in a traditional IRA. The have to add the distribution they receive to there income, maybe pushing them into a higher tax bracket. In the Roth, you prepaid those taxes when you can most afford it, went your alive. The math is not the same for a number of reasons. The traditional IRA gives a false sence of net worth- there is alwaya a tax liability attached to the asset.

Eight Pitfalls to Avoid With an Inherited IRA

With a Roth, at least you know want you have and you can access in retirement without any tax liability. My income will be the same if I save properly and have a small pension. Planning to have less is planning to fail. Unfortunately there is an over-reliance on a very inefficient product. Balancing between taxable, tax free and tax deferred is the key.

Paying the taxes now gives you a more predictable income in retirement. Whatever floats your boat Mikey. But not paying taxes is better than paying taxes. While you made a number of valid points, what about the factor that you do not pay taxes on the growth of your Roth IRA? I get that the math is the same. But, if you are so keen on not giving the government your hard earned money, why are you so willing to pay them taxes after you spent so much time growing your tax liability to them?

However, if you contribute that K in a traditional IRA and wait to pay taxes until you take distribution, sure, the net take home to you is arguably a wash. But, your payment to the government in taxes has grown at the same rate as your investment. I think that both investment vehicles have uses and should be well understood in order to use as effective tools when planning for ones own retirement. I just think your argument about not giving the government money seemed silly.

Hence, all I can do is thank you for your patriotism and helping pay for my early retirement. We do need taxpayers to keep on paying to subsidize the rest of use who worked hard all our lives and paid taxes. Yes and yes; you and your wife can open Roths, but have to be under different account. You can open additional Roths for your kids if you have any. However, you can convert a pile of funds from your other IRA, but each starts a new 5-year waiting cycle. In my limited understanding of Roth vs Trad; many here are missing on the following: In a Roth, all the gains are tax-free.

You do not get a ST or LT cap gains deduction, so you essentially are taxed twice. In great contrast, your Roth earnings are not taxed at all. Imagine what an even greater benefit the Roth will be if you compound over 10, 20, 30 years!!! Company matching, if any, is as variable if not more than tax rates. You can convert a much larger amount from your K or other IRA. So your middle class makes k a year, what would you call someone who makes 30k a year? Poverty level I suppose. I already paid well over a million in federal income taxes already. Your turn to take care of me and others. I think America will be a better place without people like you.

Typical greedy republican bullshit. How about you, my comrade? Roth big gamble at best not just for the tax reasons sighted but bk earning potential so low with govt. If earnings are tax free but there are none compared to cost of living increase then where is the value in investing in a Roth. Only time conversion might make sense is if you become unemployed for a year and return to high pay guaranteed in future.

But longevity still makes it a gamble. Hey Irene- Stop with the you owe me attitude. No one is against helping those who truly need it. Ask and show gratitude. Others give out of concern and brotherhood, not just bk you demand and demean. Poor judgement on your part to say America will be better off without earning taxpayers.

That is like you killing the goose that lays your golden egg. Think Girl and while your asking how about asking for a job…like the Chinese proverb, you know, learn to fish and feed yourself instead of asking to be handed one meal at a time. I just turned 25, make k a year, will max my k for with my next paycheck, opened up a brokerage account to pick up some stock in a few of my favorite companies this year, and also opened up a ROTH IRA at the same time.

I made a 5k contribution to the ROTH account in April and felt I was doing the right thing until I stumbled across this article and began to doubt my decision. Unless I am mistaken, a traditional tax-deferred IRA is not an option for me as I am making k a year and contributing to a k. Am I missing something, or is this correct? Thanks for stopping by. You are doing GREAT and if you keep it up for the next years, you are going to have tremendous optionality to do whatever the hell you want in life!

Trust me when I tell you that even the most exciting thing gets boring after a while, so you want to have the financial freedom to do something new. I know I did after 13 years working in finance. Contributing to a ROTH is better than not contributing. Finally, I strongly suggest you sign up for Personal Capital , an online wealth management company that is free for users. You can track all your accounts in one place so you can have a better handle of your finances.

It comes in handy the more accounts you have, and the more your wealth grows! You are obviously very gullible. This article is a waste of the bytes it is taking up on this site. Unless of course it was meant to lend a bit of comedy. But realistically, the reasons he poses for not doing a roth are laughable at best. What does that even have to do with investing. Investing is not about equality. Unfortunately it is not going to be equal. Someone always has to lose for someone else to profit, otherwise everything would essentially be free. They are already on the rise, and will continue.

Please use your head. Ignoring the questionable math on individual tax rates, this article ignores the single biggest financial benefit of the Roth. Specifically, there are no capital gains taxes paid. Nor will I pay capital gains on the hundreds of additional thousands to millions in gains I make before turning I started my Roth at the age of 22 and am now Traditional debate but instead focuses on the stupidity of paying tax upfront to pay for a growing government. This debate is different for each person and you really need to evaluate your personal situation before you can say what is best for you.

Things such as age, current income, current tax rates, future rates, anticipated retirement income, etc all have an impact on this decision. I am a CPA who does tax prep and planning so this is something I do almost daily. Articles like this do nothing but harm people as it mucks up the facts and makes it more difficult for someone to make an educated decision.

I hope this article gets people to stop blindly listening to what financial advisors, people in the money industry, and maybe even CPAs tell to their clients. People have got to learn to think for themselves. Thanks for your input…. I would say definitely pay that tax upfront then. I would spend time spending as much time with your parents and frankly helping them spend their money and enjoy life for everybody.

Another question…could the money if just left in the traditional IRA be donated to a not-for-profit charity thus avoiding tax on it altogether? Or would I have to take the money out, pay the tax on it, and then donate it? If a tax free donation is possible, that might be another way to deal with it wisely.

I love your advice on spending time with my parents…. My two siblings and I have never carried any debt other than a mortgage, and all of us have now paid off our homes in full. They are planning on going into a really nice retirement center in a year or two and will have great care and amenities as they get older. Thanks for the advice! With a Roth IRA, there are no required minimum distributions at age This only aplies to traditional IRAs. I did as you suggested…. Now I have another question that I think I know the answer to, but just want to confirm.

In the Roth, can I buy and sell stocks freely as often as I want and not have to pay attention to holding a stock for a year as I would in a regular brokerage acct.? In other words, are there any restrictions on how frequently you can buy and sell the same stock in the Roth? I am cashing out my retirement, taking a lump sum I am 55 dec My wife and I want to take , I will need to use some of it for living exs. And I am just learning about ira s cd ect never had much to put away. Oh homes in our area are , Also I heard if purchase property within 90 days its tax free is this correct?

One more thing when I take the lump sum do I have to roll it over to an ira? And to quilifie for no penities on early retirement must I end employment Dec 31 ? If we rollover to an ira and want to withdraw? Thanks for your help this is all new to use. Best to speak to a tax account for these questions. Thanks sam, We took the cash out to buy a home that we in the past, wasnt able to come up with the cash for the down payment. We are looking to buy a home that our mortgage will be less them we pay for renting We pay over Hoping this will cut down on our budget to afford to work less.

But I am learning its mot as simple as it sounds jusy to tale the cash. Thanks for you info rick. New follower here so i am sorry if this is redundant or if you answered this somewhere else. I know you are in favor of maxing out your k every year to maximum contribution limits. My question is on Roth K options for middle class and what your thoughts on this option. My company like i think a lot of companies offer employees the option in k to contribute to a roth k or traditional k. Thanks and have a great day! If you are not very old a roth is a great option to save on taxes.

I am trying to not pay taxes now AND not pay taxes in the future. When I am older and Financially independent, I will make each rental property my primary residence for a coupla years and travel the world, sell the property as my primary res and repeat. I feel a bit out of my league here even writing this question.. I am 28 and finishing my masters in Norway. I graduated at 22 from my undergrad and took a few years to work and save before pursuing a graduate degree. My tuition is percent free in Norway and I am able to work part time to support myself with a salary of a meager 25, a year.

I have minimal expenses here, but my earnings as mentioned, are meager. Or do I wait for that opportunity and pay off some student loans from my bachelors instead and let bygones be bygones until my life stabilizes post this degree? You have to start somewhere! Just found your site and very grateful if you can answer my questions.

I am now living with my brother and collecting on my Social Security not much but every little bit helps. To supplement my SS, I am hoping to locate some part-time work.

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I am 65 and feel like I am starting over from square one! I am trying to stay positive and not panic. Definitely find some part-time work where you can to supplement SS. I am glad you are getting SS btw! Do you have an expertise in writing and such? There are a lot of freelance gigs online. Good luck and hope you stick around and subscribe.

I would rate my financial competence about a 5 out of 10, and after stumbling on this article I am even less confident about my setup. I appreciate the information on the site and in this article and I was wondering if you could give me some feedback about my saving strategy? My current salary is k and I have a 25k yearly bonus. One thing which strikes people as odd is that I currently rent. The reason goes back to my financial competence which in the past was closer to a 2 out of I do plan on buying again — maybe in Lafayette ;. I have two question. One should I still keep this account and add money to it or should I close it and use the money for something else.

Two will I get penalize for taking out my 5, even tho its only been 3 years and not 5 yet? Start early in your life, leverage the internet, and keep up your savings. Your section on the withdraw penalty is misleading. Your failure to mention that prompted me to look it up afraid I misunderstood it. If the math is the same then why does it matter which account you choose to fund? Why argue against the roth if it is the same as the ? The answer is its not the same. Few major advantages to the roth. One you can put it in a brokerage account and buy more than just mutual funds.

If over 3 year you double your money an extra time or two because youre good at investing then any advantage you had in the disappears. This is also a disadvantage if you see buying stocks as gambling as your more likely to lose than with mutual funds with this approach as well. The other factor is tax rates when you make the money vs when you retire.

This one is really tough to know. I dont know what tax rates will be in 30 years its tough to say. Great article, thanks Sam! I was just doing some research on Roth vs Traditional, and your article was very helpful. Thanks for breaking it down Sam. I will be changing jobs next year where I will hopefully have a K match and hope to start contributing to a K at that point.

What do you think of my situation right now? Should I change my game plan? Any input would be greatly appreciated. Confused on your equations. At 62 30 years: Equation 1 does NOT equal equation 2. It seems that if you want to keep money management from the government, a Roth is better. I was great at math too, but I guess I did a bit better in Calculus and measuring the total under the curve…. I mean to you really think they will not tap into the last shred of wealth for middle class America some how? Just a thought Sam. Sorry, I keep wrestling with myself over this.

Especially since my k is limited to mutual funds as opposed to less safe investments such as individual stocks. Who knows the future right? What I do know is that if I pay taxes upfront to the government, I lose, they win. Never give up, unless you really think the government is doing a bangup job………. Giving the government a little money now to avoid giving them a lot of money in the future.

Your wife or kids would get the tax free money and they would reap the benefits. Sam, congrats for getting your first job out of college and maxing out your retirement plans. If you can max out the k and then max out the ROTH then great. I think it is great you are helping support the country and America needs folks to pay taxes now to fund our burden and our older generations.

I do wonder whether blogs such as mine are inadvertently hurting the government by taking away money from them and keeping more for ourselves. Sam gave some very good points on the pros of the ROTH yet in your response you failed to address any of those points and gave in my opinion a thinly veiled sarcastic response. The fact that anything a person takes out at the appropriate retirement age even the earnings can no longer be taxed is another benefit. I just wish your response to people who challenge your views were as in depth as your articles.

Not many people can make more in retirement than while they are working. Like Chris replied earlier quite clearly, this is pretty inaccurate and financially inefficient advice. Roth protects your investments from any future taxation. So my options are: Don't pay taxes and go to jail. I have a couple questions, Im married and 30yrs old and the total income is about 95k.

Im assuming from what I have read the first thing me and my wife need to do is max out our k at Then is a IRA even worth it? What type of IRA would be most benefitial. I would rather not get screwed by the government when it come tax time in the end also. After I do a roth what type of investments should I choose? Sorry if my questions seem odd Im new to the roth idea. Take a look at this net worth allocation post for more details. Do you think you will make more annually in retirement than you do when you are working?

I think for the vast majority the answer is no. The government loves it because they want all they can get as soon as they can get it. Why do people think they will make more in retirement than during the majority of their working years, I have no idea. If that is the case, Roth protects those double plus digits from any future taxation with the cost of paying taxes on the original much cheaper principal you put in.

Do not pay taxes now but deferred to gain your balance. If you really wanted to take a look at savings that the government gets through taxes, all you have to do is look at the contribution limit of the k versus Roth:. The government knows that a post-tax dollar saved is worth way more than a pre-tax dollar saved, because they are unable to tax you when you withdraw from a Roth IRA. That is why the limit is so much lower. The flexibility and tax-free withdrawals of a Roth IRA allows a person to have greater optimization of spending their money in retirement.

What do you think?

If you put in a roth and buy stock and double your money in a few years you owe no tax on that Have to agree here. And if you want to talk about how inefficient the government is with our money, I think it is silly not to at least mention that their mishandling of money could very well lead to future tax hikes as well. If you think you will make more money in the future than you do now, you can pay a lower tax, invest the money tax-free, and then withdraw it at retirement when you might be in the top tax bracket.

If you are a young person, you can take most advantage of tax-free interest and should really look into a Roth IRA. My dividends alone should be about k when i retire at 45 or so. How did you save so much? What were things like during the downturn? While I do agree most people will never make more while retired I certainty plan to. I invest more money monthly usually than the limit for the whole year on a Roth. This article is terrible advice and stems from a paranoia in government. The tax free advantages on dividends and capital gains in a ROTH IRA, especially by those who have expertise in investing in individual common stocks is great, and I fear people are being terribly mislead from this particular blog posting.

Share with us your financial position, experience and age so why have perspective of where you are coming from. If you think you can make more in retirement than while working, then good luck to you.

If not, max out the k and IRA first. One slip-up by the beneficiary or even by the benefactor before death, and that tax gem can be lost forever. Instead, the beneficiary will be forced to take the money out of the IRA under the five-year rule. For substantial accounts, that can add up to a monstrous income tax bill -- unless the IRA is a Roth, in which case taxes were paid before money went into the account.

Distributions from an inherited Roth IRA will be tax-free unless the account was established less than five years before -- in which case the earnings may be subject to tax. When it comes to inheriting an IRA, spouses can basically take the account and treat it exactly as if it were their own. Onge, an enrolled agent in Detroit. If the spouse inherits a Roth IRA, no distributions will be required ever. Spouses "are able to roll the IRA into an account for themselves.

Nonspouse beneficiaries can be done in by procrastination. In order to choose the stretch option, a beneficiary must take yearly required minimum distributions, or RMDs, based on his or her own life expectancy. If you miss that date, you default back to the five-year rule," says Tully. The take-away for inheritors: Don't rush to make any decisions, but do be aware that the clock is ticking.

Another hurdle for beneficiaries of traditional IRAs is figuring out if the benefactor had taken their required minimum distribution for the year they died. He probably hadn't gotten around to taking out his distribution yet. The beneficiary has to take it out if the original owner didn't. The last day of the year is the deadline for taking that year's required minimum distribution. For estates subject to the estate tax, inheritors of an IRA will get an income tax deduction for the estate taxes paid on the account.

The taxable income earned but not received by the deceased is called "income in respect of a decedent. But because that person's estate had to pay a federal estate tax, you get an income tax deduction for the estate taxes that were paid on the IRA. Just that someone did," she says. An ambiguous, incomplete or missing designated beneficiary form can sink an estate plan. Many people assume they filled out the form correctly at one point. But the form hasn't been completed, or it's not on record with the custodian. That creates a lot of problems," says Tully.

If there is no designated beneficiary form and the account goes to the estate, the beneficiary will be stuck with the five-year rule. The simplicity of the form can be misleading. Just a few pieces of information can direct large sums of money. People procrastinate, they don't update forms and cause all kinds of legal entanglement," says M.