General Question

wundayatta's avatar

Do you have a Roth IRA?

Asked by wundayatta (58354 points ) February 20th, 2013

Do you have any other kind of IRA? How did you decide what kind of IRA to fund? Do you fund it to the maximum you are allowed? How old were you when you started it? What do you think are the benefits of a Roth over other kinds of IRAs?

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18 Answers

gorillapaws's avatar

If you make the same amount of money and tax rates never change your whole life the IRA and the Roth IRA will result in the same amount being taxed and the same amount being saved. The difference is if you pay taxes now (the Roth) and enjoy tax free growth of your money, or if you pay taxes later (traditional) when it’s time to withdraw the money for retirement.

For most people (especially young people) the Roth is a better deal because they’re being taxed at the lower brackets and at the higher brackets as they age and their careers/salaries mature.

nikipedia's avatar

I’m in the process of opening an IRA. I’m 28. I don’t think I’ll be able to fully fund it this year, but starting next year I should. There is no tax benefit for me of a traditional IRA so I will almost definitely do Roth.

JLeslie's avatar

No. The Roth IRA was invented when I had aread established money in a regular IRA. If I had converted I would have had to pay the tax. Now we make so much everything we add is taxed. Possibly we can’t even do a Roth with our income level? I don’t know the parameters for 2013. Anyway, I just never bothered to change anything. I seriously thought about it for a while, and for whatever reason decided against. Maybe I should reconsider again. I’ll be following to see more answers.

I started my IRA when I was in my early 20’s I think. I have not contributed every year, but when I do I do the max.

KNOWITALL's avatar

I do have one.

I don’t have another.

My employer offered it, so I really had no choice.

I fund at about 10%, employee matches a percentage.

I started it about 10 years ago upon my employment.

Benefits, you can get a penalty-free loan, pay a little back with each paycheck, no tax disadvantage (incuding funerals, vehicle repairs, etc…). Additionally, you can change your investments easily online, and I get free help making my selections.

JLeslie's avatar

@KNOWITALL I think you mean a 401K.

syz's avatar

I have a simple IRA through my employer, and recently started a Roth. (Since I don’t make much money, there’s no need for a 401K for maximizing contributions.)

SadieMartinPaul's avatar

Roth IRA’s are ideal for people who:

(1) Don’t expect to need the resources. Traditional IRA’s have annual, required minimum distributions that are taxable; Roth IRA’s have no mandatory distributions. If someone has sufficient retirement assets, why be forced to receive unwanted, taxable income each year?; or

(2) Want to leave the assets to their heirs. Traditional IRA’s are intended to fund retirement, not to fund a decedent’s estate, and federal law makes it difficult to leave much behind. Roth IRA’s, in contrast, are useful prong in estate planning; or

(3) Can’t make tax-deductible contributions to a traditional IRA—they’re covered by an employer-sponsored plan and have their deduction phased-out—but want to save more retirement money. There’s no longer any point to making non-deductible contributions to a traditional IRA (which creates basis in the IRA assets). A Roth is a much better choice in this situation.

For all the other people out there—those who are eligible to make a deductible IRA contribution, who will indeed need the assets someday, and who won’t amass Lord or Lady Bountiful’s estate—a traditional IRA remains the right option.

burntbonez's avatar

I do have a Roth. Also a regular IRA. Also a 401K. Also 401ks from past employers. Should I convert my past 401ks to Roths?

The tax rate jumps from 15% to 25% above 70K. If I convert 70k in 401k to roth, just about all that will be taxed at 25% instead of 15%. Why bother? Will rates go up? Am I likely to pay 15% when I retire? So many imponderables.

When, in history, have tax rates gone up for most people?

SadieMartinPaul's avatar

@burntbonez During their senior years, a privileged few have substantial income and, thus, hit higher tax brackets. These are the lucky people who had the resources to invest in securities, acquire rental properties, and buy into limited partnerships and limited liability companies.

Most retired Americans have modest social security payments (which aren’t taxable below an adjusted gross income threshold) and, if they’re fortunate, some IRA assets. Private pensions are gone. Taxable income, along with the related tax brackets, are generally low.

The rule of thumb—Most people can expect have less income, and pay little or no income tax, after retirement. It’s usually better to take a tax deduction upfront, during one’s working years, when income’s higher.

JLeslie's avatar

@syz See that doesn’t make sense to me, but I am no expert. I don’t think IRA’s are ever through employers. That would be a 401k. I would almost always do a 401k over an IRA, because of the employer matching. Unless the 401k is very limited innwhat you can invest in.

SadieMartinPaul's avatar

@JLeslie

@syz is referring to either a SIMPLE IRA or SEP-IRA. Both are employer-sponsored retirement plans that use traditional IRA’s as their funding vehicles.

Many 401(k) plans receive neither employer matches nor employer discretionary contributions. If a 401(k) passes its ADP test without any problems, and if the plan document doesn’t stipulate employer contributions, no contributions are required. In contrast, every SIMPLE-IRA receives employer money—this is mandated by law—and a SEP-IRA is funded entirely with employer money (no employee contributions).

YARNLADY's avatar

I have several different kinds of IRA’s, which have been started over the years. I am now at the age where I am required to make a minimum withdrawal from them, and I am going to take the money and put it back into other investments.

I suggest you read all you can on the different types, and don’t choose just one place to put all your savings.

My husband does all our investment research and deposits. He is fully employed and will be for the next five or more years.

SadieMartinPaul's avatar

Announcement to all Jellies everywhere:

@YARNLADY is at least age 70–½ !!! She just admitted it. :-)

YARNLADY's avatar

@SadieMartinPaul Did you miss my birthday party last month? It turns out we can withdraw anytime in the year we turn 70 and a half, or as late as April the following year.

SadieMartinPaul's avatar

I didn’t get an invitation to your birthday party. Could that be because I’m such a BRAT?!?! :-)

Yes, you’re right about the timing of your initial distribution. One thing to keep in mind, though—if you wait until April of the following year, you’ll need to take two full distributions during that same year. I don’t know your circumstances, of course, nor would I ask about them, but the doubling-up might have some income tax consequences. Also, if you’re collecting social security benefits, and if your benefits have been excluded from taxation, a one-time spike in taxable income could have an effect.

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