Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Roth IRA
Old 06-29-2004, 08:54 AM   #1
Dryer sheet wannabe
 
Join Date: Aug 2004
Posts: 13
Roth IRA

For those who are earning income and want to shelter some of it because you don't need immediate income and file a joint tax return, you can put it in a Roth IRA. Only one spouse needs to earn income and if over $3000, you can put $3000 in a Roth for both of you, or $7000 total if over 50 years old. Check out the details, but sounds like a great idea.
__________________

__________________
chickbull is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Roth IRA
Old 07-16-2004, 10:25 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W
Posts: 5,880
Re: Roth IRA

The Roth IRA is one of the best gifts that congress ever gave us. *

Unfortunately too few of my fellow citizens have grasped to concept of tax-free growth and continue to not save or save in a traditional IRA so that they can get this year's tax deduction.

When the Roth first came out I remember feeling that it was so good that congress would surely cancel it or make radical changes to it as I assumed that EVERYONE in the USA who had a job would jump on the bandwagon like I had.

Sadley, not much bandwagon jumping has occured, however I'm realy happy to be contributing the max each year, along with the wife, for as long as the law allows me to do so.
__________________

__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd is offline   Reply With Quote
Re: Roth IRA
Old 07-16-2004, 12:01 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,408
Re: Roth IRA

It might be some residual bad after taste effects - when the opportunity to convert trad to Roth (4 year ave) a lot of people jumped - in time for the 2000 - 02 pop and didn't like the resulting tax consequenses - Congress/IRS gave some help but - still??

As for starting out - I guess it's the same inertia as 401k, Trad. IRA and just plain - save some money for retirement.

I still run the trad/Roth conversion trade off numbers every fall - it's a judgement call on tax brackets and Congress 10-20 years out.
__________________
unclemick is offline   Reply With Quote
Re: Roth IRA
Old 07-16-2004, 12:18 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Jul 2004
Posts: 1,505
Re: Roth IRA

Probably most folks here know about Roths Chickbill, but I guess there are some newbies too.

I use only Roths (except in cases where i had to rollover a pseudo traditional from a company i used to work at). *I like Roths for three reasons: *1. *When you see your balance in a Roth, that amount is yours and all yours. *You wont have to do math in your head to figure how much tax you owe. * 2. *It allows you to save more than a traditional; a critical thing for anyone attempting ER. 3. In the event you actually need some money out of the Roth (eeekk! i know), you can do so with no penality, long as you only touch principle.

IMHO, a person that's trying to max their ER opportunity has no use for a Traditional IRA because of #2 above. *Even if the taxes arnt quite as good for your specific situation, the ability to sock away more under tax protection (which the Roth allows, because its "after-tax" money) is a far greater benefit.
__________________
azanon is offline   Reply With Quote
Re: Roth IRA
Old 07-16-2004, 02:48 PM   #5
 
Posts: n/a
Re: Roth IRA

For me, "after-tax" and "before tax" money has very little meaning now. My income is so low, it is kind of
irrelevant. Another aspect of ER which was completely
unanticipated.

John Galt
__________________
  Reply With Quote
Re: Roth IRA
Old 07-16-2004, 03:09 PM   #6
Recycles dryer sheets
 
Join Date: Jul 2004
Posts: 430
Re: Roth IRA

azanon-

Not quite sure what you mean about being able to contribute more to a Roth than a traditional. Max. for each (or a combination of both) is $3000 (unless you are 50 or over).
__________________
gindie is offline   Reply With Quote
Re: Roth IRA
Old 07-16-2004, 03:15 PM   #7
Full time employment: Posting here.
 
Join Date: Sep 2003
Posts: 902
Re: Roth IRA

Quote:
For me, "after-tax" and "before tax" money has very little meaning now. *My income is so low, it is kind of
irrelevant. Another aspect of ER which was completely
unanticipated.
I anticipated that scenario when the Roth first became available. For that reason, the Traditional IRA can beat the Roth. Why pay a tax today when there's a good chance I'll dodge the tax altogether (or pay less tax)?
__________________
Bob_Smith is offline   Reply With Quote
Re: Roth IRA
Old 07-16-2004, 04:55 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Jul 2004
Posts: 1,505
Re: Roth IRA

Quote:
Not quite sure what you mean about being able to contribute more to a Roth than a traditional. Max. for each (or a combination of both) is $3000 (unless you are 50 or over).
I should have clarified. Effectively, you can contribute more to a Roth because the money you put in a Roth IRA has already been taxed. Because of that, both the interest/gains you will earn after that, and all of the principle you put in a Roth is yours. Everytime you look at a Roth balance, you can think of everybit of it as yours, and uncle Sam will never see a dime of it (cause he already saw it before you put it in).

With a traditional IRA, you can also put 3K in, but you havent paid taxes on that money yet. The IRS will always get their taxes, so they get them in the end (on the principle). So, from then on, you'll get tax deferred growth, but in the end, you're going to pay a lot of tax on all the principle you put in there.
__________________
azanon is offline   Reply With Quote
Re: Roth IRA
Old 07-16-2004, 05:10 PM   #9
 
Posts: n/a
Re: Roth IRA

But how about a guy like me, with total control
over my taxable income? If I can draw on the IRA
and still keep my total income low enough, I pay no taxes. I realize I am unusual, but it can be done.

John Galt
__________________
  Reply With Quote
Re: Roth IRA
Old 07-16-2004, 07:24 PM   #10
Thinks s/he gets paid by the post
 
Join Date: Jul 2004
Posts: 1,505
Re: Roth IRA

Yeah your situation is different John. I was advocating Roths for someone aspiring towards ER, not someone who's past the finish line. Yeah, if you can keep earned income so low that tax isnt an issue, why use them? I assume you still have earned income since that's a requirement to be eligible to contribute to IRAs.

__________________
azanon is offline   Reply With Quote
Re: Roth IRA
Old 07-16-2004, 10:26 PM   #11
Thinks s/he gets paid by the post
Telly's Avatar
 
Join Date: Feb 2003
Posts: 1,448
Re: Roth IRA

Quote:
But how about a guy like me, with total control
over my taxable income? *If I can draw on the IRA
and still keep my total income low enough, I pay no taxes. *I realize I am unusual, but it can be done.

John Galt
I dunno John, all may not be quite so green in the Emerald City of the future. Up to 85% of your SS benefit may be taxable. As a determinant of how much of your SS is taxable, the IRS uses your taxable income, PLUS your non-taxable income, with the 32k constant for married filing jointly. So, if at first the taxable component of SS doesn't look too bad, just wait for inflation to boost your income requirements, and boost your inflation-indexed SS bennies. The 32k is a CONSTANT in the algorithm, so as the years go by, SS bennies get taxed heavier and heavier. It really starts to move.

A couple years ago I built a spreadsheet to calculate the taxable portion of SS dollars. The inputs are SS benefit $, taxable income $, and non-taxable income $. I had to flow chart it all out on paper first, and learn logic operations in Excel. It was an eye opening experience on how Byzantine our tax law really is.
__________________
-- Telly, the D-I-Y guy --
Two fools dancing on the hands of time
Telly is offline   Reply With Quote
Re: Roth IRA
Old 07-16-2004, 10:31 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Roth IRA

Dont count out roths for the already ER'ed, albeit with a twist.

It might be a great idea to find a way to generate just the 3k needed in earned income to fund the roth. I'm sure most of us can find a way to spring a few grand without actually working in a conventional manner.

In my situation where I ER'ed and the wife continues to work part time, we're going to use her earned income to stuff a pension and 403b plan, then fully fund a roth.

I have pretty good control over my current income right now, but I think I'm going to lose that (in a good way) when our combined IRA's start requiring withdrawals and social security hits. We may be seeing uncontrolled income in the six figure range (in todays dollars) and having some of that as non taxable roth income should taste pretty good.

But thats a long time from now and almost anything can happen between now and then...
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Roth IRA
Old 07-17-2004, 02:02 PM   #13
Recycles dryer sheets
 
Join Date: May 2004
Posts: 495
Send a message via AIM to yelnad Send a message via Yahoo to yelnad
Re: Roth IRA

My husband pays a $25 a year maintenance fee for his Roth IRA through Ameritrade. Is this normal? Suggestions?
__________________
Yelnad --"What you're paying for is an education, not a room at the Sheraton,and sometimes that education is uncomfortable."- Jim Terhune, Dean of Student Affairs, Colgate University
yelnad is offline   Reply With Quote
Re: Roth IRA
Old 07-17-2004, 02:10 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Roth IRA

For one to pay for a roth account maintenance or for ameritrade to nickel and dime you?

I think if you have a low balance, usually under 5 or 10k, many places will charge you a small fee. Even vanguard does it I think...a "low balance" fee. If your balance is higher than that, move it somewhere where they dont charge you stuff without returning you some value!
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Roth IRA
Old 07-17-2004, 05:53 PM   #15
Recycles dryer sheets
 
Join Date: May 2004
Posts: 495
Send a message via AIM to yelnad Send a message via Yahoo to yelnad
Re: Roth IRA

OK - so I just opened my own Roth IRA through TIAA-CREF with no fees. When choosing my allocations every category had choices for both variable annuities and mutual funds. What's the difference? For now I just selected the same allocations as my 403b, which are all variable annuities.
__________________
Yelnad --"What you're paying for is an education, not a room at the Sheraton,and sometimes that education is uncomfortable."- Jim Terhune, Dean of Student Affairs, Colgate University
yelnad is offline   Reply With Quote
Re: Roth IRA
Old 07-17-2004, 06:25 PM   #16
Full time employment: Posting here.
 
Join Date: Sep 2003
Posts: 902
Re: Roth IRA

Quote:
OK - so I just opened my own Roth IRA through TIAA-CREF with no fees. When choosing my allocations every category had choices for both variable annuities and mutual funds. What's the difference? For now I just selected the same allocations as my 403b, which are all variable annuities.
Hi yelnad,

Annuities are insurance company financial products, usually with high expenses. I wouldn't invest in annuities. I would suggest that you read a good book for beginners. My favorite is Personal Finance for Dummies by Eric Tyson. It's well done and an easy read. Also, take a look at another thread in this section where people are listing their investments. It will give you a feel for the types of things people here are doing with their money.
__________________
Bob_Smith is offline   Reply With Quote
Re: Roth IRA
Old 07-17-2004, 06:26 PM   #17
Thinks s/he gets paid by the post
charlie's Avatar
 
Join Date: Mar 2004
Location: Dallas
Posts: 1,211
Re: Roth IRA

yelnad,

A variable annuity within a tax sheltered account like
a ROTH IRA makes absolutely no sense. It is almost
criminal that they would give you this choice, IMHO.
I am not familiar with 403b accounts, but I suspect
they are similar to a 401k. If you can, I recommend
that you switch to the equivalent mutual funds immediately. With variable annuities you are putting
a tax sheltered investment within a tax sheltered
structure. The variable annuities have a higher cost
ratio than the underlaying mutual fund to cover the
death benefit. Run, not walk to the nearest exit.

Help me out guys if I am speaking with forked tongue.

Cheers,

Charlie
__________________
charlie is offline   Reply With Quote
Re: Roth IRA
Old 07-17-2004, 06:35 PM   #18
Full time employment: Posting here.
 
Join Date: Sep 2003
Posts: 902
Re: Roth IRA

Yep, I agree with Charlie. I have a 403(b) and they are sometimes called "tax sheltered annuities". In fact, that's how all the official 403(b) documents in my organization are titled. This leaves unsuspecting employees with the impression that they must buy annuities. The insurance companies love that! I'd say more than 75% of the people in the organization I worked for have nothing but annuities inside their 403(b)'s, simply because insurance companies have salesmen to push them, and the employer is almost always clueless.
__________________
Bob_Smith is offline   Reply With Quote
Re: Roth IRA
Old 07-18-2004, 03:56 AM   #19
 
Posts: n/a
Re: Roth IRA

I bought an annuity once, in the early 90s. Decided
later it was a mistake (dodn't do my homework,
which is typical. My ex. got it in the divorce.

John Galt
__________________
  Reply With Quote
Re: Roth IRA
Old 07-18-2004, 10:23 AM   #20
Recycles dryer sheets
 
Join Date: May 2004
Posts: 495
Send a message via AIM to yelnad Send a message via Yahoo to yelnad
Re: Roth IRA

I definitely need to read up on this more and sign up for an appointment the next time a rep is on campus.

OK - my 403(b) ONLY deals in annuities.

TIAA-REF stands for: Teachers Insurance and Annuity Association College Retirement Equities Fund

So I can't change anything in my 403(b) to mutual funds. I'm pretty sure I can change the ROTH-IRA to mutual funds.
__________________

__________________
Yelnad --"What you're paying for is an education, not a room at the Sheraton,and sometimes that education is uncomfortable."- Jim Terhune, Dean of Student Affairs, Colgate University
yelnad is offline   Reply With Quote
Reply

Tags
ira


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Traditional IRA to Roth Conversion Question Dog FIRE and Money 5 03-10-2007 10:53 PM
?? for uber-savers, non-deductible IRA to Roth IRA in 2010 LOL! FIRE and Money 8 12-21-2006 01:25 AM
Roth IRA & Timber Rights/Tree Farm terminator FIRE and Money 6 07-16-2006 04:09 PM
Roth 403b AND Roth IRA? macdaddy FIRE and Money 3 07-05-2006 07:25 PM
Not eligible for Roth IRA - conversion? Lusitan FIRE and Money 9 02-23-2006 11:00 AM

 

 
All times are GMT -6. The time now is 01:30 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.