Jan 14

I don’t think we’ll be able to put the maximum yearly contribution in them or anything like that, but I’m really leaning towards opening Roth IRAs for my husband and I at our local credit union. Is there anything you wish you had considered before opening a retirement account? Would you go with Roth or Traditional?

5 comments so far...

  • SelfShal Said on January 14th, 2010 at 9:45 am:

    You should get Roth IRAs. You have a longer time than most to realize the benefit of a roth on the tax side of things.

    The chief advantage of the Roth IRA is obvious: the ability to have investment earnings completely escape taxation. The advantage comes at a price, though: you don’t get a deduction when you contribute to the Roth IRA.
    So which is more important? It depends on your personal situation, and also on what assumptions you want to make about the future. How long before you withdraw money from your IRA? What will your tax bracket be then? What earnings can you anticipate in the interim?
    You can do lots of fancy analysis, but the bottom line is that most people are better off in the Roth IRA. The chief reason is that the Roth IRA is effectively bigger than a regular IRA because it holds after-tax dollars. If you can take advantage of this feature of the Roth IRA by maximizing your contributions you’ll add greater tax leverage to your retirement savings.
    There are two other significant advantages to the Roth IRA. One is that the minimum distribution rules don’t apply. If you’re able to live on other resources after retirement, you don’t have to draw on your Roth IRA at age 70½. That means your earnings continue to grow tax-free. The other big advantage is the ability to take certain early distributions without paying the early distribution penalty. In short, the Roth IRA makes it easier to keep your money in, and also easier to take your money out.

  • Money_bags Said on January 14th, 2010 at 10:27 am:

    Personally I recommend the Roth IRA, no deduction now, but you’ll get the tax break in the future when you withdraw. If you plan to subsidize your retirement with your investment accounts this is the way to go. I’d call a financial professional and speak to them. These guys can help you.

  • Aymulette Said on January 14th, 2010 at 10:52 am:

    The decision to choose Roth vs. Traditional often comes down to a question of income. The main difference between the two is that contributions to a Roth IRA are not tax deductible, but the money grows interest free, and you are not taxed at removal upon retirement. WIth a traditional IRA, tax deductions are available to a certain extent; the money grows interest free, but you will have to pay tax when you withdraw it in retirement. (but the theory is that when you’re retired, your tax bracket will be lower, so it’s not so bad. Problem: who knows what the tax rates will be 40 years from now!)

    The caveat with a Roth is that you cannot contribute to a it if your income exceeds a certain amount per year. ( I think the current income cap is $150k- so if you make less than that, you’re fine).

    The Traditional’s caveat is the taxation upon withdrawal later, and the amount that is deductible each year on your income tax return phases out if you are a high income earner. ( you can still contribute, but you can’t take the deduction).

    GIven that you are relatively young, and assuming you earn less than $150k per year, I’d recommend the Roth IRA. If you ever get to the point where youre’ earning over 150, then you just stop contributing to the Roth, and open a traditional, or whatever is available at that time. Just because you hit the 150k mark, and cant’ contribute anymore does not mean you will lose what you’ve already got.

    Kudos to you and your husband for taking such a intelligent, reasonable, and important step towards future financial security!

    Good Luck!

  • Brian B Said on January 14th, 2010 at 11:32 am:

    Roth for sure.

  • Rank Roo Said on January 14th, 2010 at 12:08 pm:

    Something to consider: If you are getting some sort of employee match with your contribution, it will be put in a traditional. So if you choose Roth, you will have 2 accounts. You might find it a little harder to manage.

    Theoretically, it does not matter Roth or Traditional! Work it out on paper! That is why the government allows us the option. However, if you know for sure your tax bracket is higher now than it will be when you retire, a traditional will be better. If you know for sure your tax bracket will be higher when you retire, than you should choose roth.

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