29 starting to save for retirement looking for IRA advice

[sleepyhollow]

Hey there I am new to the forum. It's been a pleasure reading the advice everyone has to offer. I have searched to find an answer, my situation is most likely common, but I am yet to find what I need. I am married no kids, combined AGI approx 150k looking to invest in an IRA. I have looked and researched and read until I can't read anymore and still need help. I have ran the calculators and I can't tell if a tradition with the tax benefit will save me that much money vs investing in a Roth. I am leaning toward Roth simply because I like the idea of being able to access my money. If you all were in my position which would you start with? I am starting fresh with retirement investments, nothing saved thus far.

[Sue J]

I am no expert on this but one of the best advantages of a ROTH is that you will not have to deal with RMD (Required Minimum Distributions) like you will with a Traditional IRA. Find some of the the topics here about retirees managing their taxable income because they have to include RMDs after age 70.5.

To me, the TAX FREE GROWTH and flexibility of the ROTH far outweigh the tax deduction of the Traditional IRA.

If you can afford to forgo the tax deduction now, a ROTH is a much better choice.

YMMV (Your Mileage May Vary)

Congratulations on being 29, making a good income and HAVING A CLUE! My sons are 29 and 27. The 29 year old has been investing in a ROTH since age 22, the 27 year old just opened a ROTH IRA.

Welcome to the forum!

[whipsaw]

Some information that might be helpful -

How much per year are you looking to invest? Roths, for example, have relatively low maximum annual contributions. What are your retirement goals? What are your expenses now? What do you anticipate your expenses being in retirement? Are you planning on having children?

[sleepyhollow]

Quote:

Originally Posted by whipsaw Some information that might be helpful - How much per year are you looking to invest? Roths, for example, have relatively low maximum annual contributions. What are your retirement goals? What are your expenses now? What do you anticipate your expenses being in retirement? Are you planning on having children?

I am looking to invest approx 5k per year. My expenses are relatively low, but I do not anticipate them to stay low, that is why I am setting myself to commit to at least 5k investment and possibly higher in the future. I have a load of student loans that will be paid in 6 years. I guess the key is tax rate. I am in about the 28% bracket now and I could not see myself being in that bracket when I retire. After 60 I anticipate working at least a few days a week, the profession I am in can allow this. Yes we plan on having kids in the next few years.

[someguy]

This ultimately boils down to a crystal ball decision on taxes. Since no one has one, perhaps the best thing to do would be to diversify and do half to Roth and half to pre-tax IRA/whatever. The most important thing is start doing something and do it right away. The only truly bad path you could take here would be to fritter away what would have been the $5K/year savings or to let it sit in a checking account.

Saving $5K/year on an income of $150K/year with no kids is pretty low. If you don't have something else going (other savings, pension, etc) then you are unlikely to semi-retire early. In my opinion, you in fact will most likely end up being a late retiree.

[nash031]

Are you guys covered by work retirement plans? At $150k AGI, are you even eligible for the deduction on a traditional IRA?

My wife and I are right around that same number, but with her 403b and my TSP, our only option is Roth. Non-deductible contributions to traditional IRAs are more or less pointless, and should be converted to Roth as soon as possible.

See the IRS page linked for the rules on your deductions depending on your employment situation. Suspect your choice will be simple.

IRA Deduction Limits

[Animorph]

If you can contribute to the Roth and somehow stay in the 15% tax bracket then do that. I think you're probably past it already at $150k AGI.

Within the 25% tax rate you still may be in a position where your retirement tax rate stays in the 25% bracket. The Roth contribution is still preferable. Equal tax rates favor the Roth because of the extra after tax value you can store in them versus the traditional IRA.

If your current marginal tax rate is 25% and your rate in retirement will be 15% then the traditional IRA contribution is best.

My guess is since you are apparently fairly young the 25% current tax rate and 25% retirement tax rate is likely, so a Roth contribution would be indicated. But keep an eye on your projected retirement tax rate.

[racy]

Quote:

Originally Posted by sleepyhollow .... If you all were in my position which would you start with? ...

Hi sleepy,
I would do the Traditional IRA since I can calculate the benefits I'm getting now. To me, future tax rates are unknowable, which ROTH calculations depend on. "A bird in hand is worth two in the bush" comes to mind.
Good luck.

[jclarksnakes]

OP,
..Can you handle some tough love? There are people who post on this forum who as couples live on 30K or even less per year. Those people can honestly claim that they have relatively low expenses. My DW and I are currently living in retirement on an income quite a bit less than your 150k income. I would feel silly claiming that our expenses were low. Your writing that with an income of 150k and no savings you have relatively low expenses seems totally disconnected (perhaps clueless would be a better though not very kind word instead). You are moving in the right direction posting here asking about traditional IRAs and Roth accounts but until you really do get your expenses down to a reasonable level and save a lot more than 5k per year you are dooming yourself to working forever or retiring with income far below what you are accustomed to spending. IMO you need to figure out where the money has been going by tracking your expenses and then budgeting for the important things and cutting back on the fluff.