Roth Contribution Advice

[10at6]

I have a question, probably a stupid question to which I think i already know the answer:

I am able to max out my 401K and contribute another $2,000/Mo to savings. I make a bit too much to contribute to a traditional IRA. We already have good sized regular savings/investment accounts and we have both been putting $2K a year in a Roth for several years.

Would we be better off to fully fund the Roth at $6000/yr/each or put the money in a regular investment account? I'm 55 and may work another 3 years. Seems like increasing the Roth to the max is a better choice as there will be no taxes to pay on the income or distributions in retirement. Am I missing something?

Wish I'd have thought of this earlier. Thanks in advance
Randy

[jIMOh]

I would max out the Roth if you are capable of doing so (assuming you have captured the 401k match).

If retirement is about 5 years away, have you thought about your tax rate now vs tax rate then? If you are in a high tax bracket now, maxing the 401k should take priority over the Roth.

[dessert]

Quote:

Originally Posted by 10at6 I am able to max out my 401K and contribute another $2,000/Mo to savings. I make a bit too much to contribute to a traditional IRA. We already have good sized regular savings/investment accounts and we have both been putting $2K a year in a Roth for several years. Would we be better off to fully fund the Roth at $6000/yr/each or put the money in a regular investment account? I'm 55 and may work another 3 years. Seems like increasing the Roth to the max is a better choice as there will be no taxes to pay on the income or distributions in retirement. Am I missing something? Wish I'd have thought of this earlier. Thanks in advance Randy

I was in the same position a few years back. You already have your answer. When you are retired, this small amount of "tax-free" money will be much appreciated by you. If you happen to be married you can also put 6K into your spouse's account as well. I also wish I had done it earlier but it is never too late to start. Just do it. You'll be glad you did later.

[Art G]

I believe you've got it backwards. There's no limit on contributing to a traditional IRA, but there is to a Roth.

https://www1.evergreeninvestments.co...RA_Eligibility

[Sarah in SC]

For deductibility, the OP is correct, Art.

To the question, I would personally fund the Roths for you and spouse to the max instead of taxable savings.

[CitricAcid]

The ability to tax-deduct your IRA contributions, as Sarah in SC points out, dose get phased out though, and if you are married filing jointly, then it is very easy to be able to contribute to a Roth and lose tax benefits from a traditional IRA.

[dessert]

10at6, of course the Roth contributions are fed with "after tax" money so yes you want to fully fund your 401K before contributing to the Roth. We can only contribute the "maximum amount" as deductible so any further savings would be beneficial in a Roth because of the future income that will be tax-free.
Have you ever looked out at your back yard and thought that you could be eating fresh fruit off your fruit trees...... if only you had planted them a few years back?

[10at6]

Both the wife and I have been contributing around 2K/year for about 8-9 years. At the same time we were able to max out my 401k including the catchup limit and put a few thousand a year in conventional savings. With retirement approaching and after I got hammered on dividend/CGains last year I started thinking we would have been better off to put more in Roth's in the past. I would have avoided current taxes and had more tax free income at retirement. All is not lost, we should have around $125K at age 58 to work with and that will help to keep taxes down.

Something to think about though!
Thanks for the responses