May 4

I asked a question earlier, but I’m still unsure as to which I should choose. Right now I’m 25, single and have a savings account. I’m looking into an IRA for retirement…thinking long term here(30+ years). My Credit Union offers both Traditional/Roth IRAs, and Tradtional/Roth CDs. I’ve read about the advantages and disadvantages to both types of IRAs but I’m nervous about picking the right one for my needs and the future. The pre-taxed Roth seems great, but what if I get married and we make over $160k?(With my current career path it may be possible) and I’ll likely be in a lower tax bracket upon retirement. Any suggestions?

7 comments so far...

  • gbcopy Said on May 4th, 2010 at 6:53 pm:

    Get the pre-taxed Roth while you can – then if you make more money later you can open a traditional IRA.

  • Aphrika Said on May 4th, 2010 at 7:51 pm:

    Never plan around a possibility like marriage. Plan just for yourself. If anything changes, you will find a way to make things fall into place. I say go for the Roth.

  • Crystal Said on May 4th, 2010 at 8:03 pm:

    Here’s the thing — picking either is better than picking nothing. Get started. The moment you do, you have an IRA! Good for you! Later you may decide to start a second one, or you may decide to transfer between IRA’s — be careful. Roth is probably your best bet while you can get one, and it continues to grow until you retire. When you make too much money, you open the other kind instead. No problem. So just pick one, and go for it. There is no ‘perfect’ IRA, so just pick one you think is probably ok. A few years from now you’ll wonder why you waited, you’ll be comfortable with it.

  • STEVEN F Said on May 4th, 2010 at 8:15 pm:

    I would still go with a Roth for now. If your income later exceeds the income limits, you won’t be able to ADD to that account, but whatever is in the account will continue to grow tax free. You can always open a traditional IRA later if you exceed the income limit to contribute to the Roth. There are annual limits on your total contributions to IRAs, but no limit on the number of IRAs you can own.

    Personally, I would look for an IRA that can be invested in stock mutual funds, over the 35+ years before you can withdraw the money, the stock market will provide a better return then accounts normally offered by a Credit Union.

  • William H Said on May 4th, 2010 at 8:32 pm:

    If you have 30+ years for your investment to mature, do you want to invest in CD’s? Equities are the way to go if you have a long investment horizon.

    For every year you qualify for the Roth, do it.

  • Laissez-Faire Guy Said on May 4th, 2010 at 8:57 pm:

    First, you are not restricted to only a Roth or Traditional IRA. You can have both. If you contribute to a Roth today, but later on your income prohibits it, you can still just let it sit there and grow. Later on when you are making big bucks, you can invest into a Traditional IRA or 401k.

    I have both, and depending on how I do, here’s how I invest. If I have a big income year and taxes are high, I invest in the traditional IRA, because it will lower my current taxes. I fully expect when I retire I will be retiring at a lower income, so I can then take that money out at the lower tax rate in the future.

    If I have a less than great income year, and taxes are low, I’ll invest into the Roth and reap the tax free benefits later. Roth’s also have the benefit that you can withdraw the contributions without penalty before retirement should you really need them. Just what you contributed, not the earnings.

    If you don’t really know where to invest, I recommend going with a Targeted Retirement fund. Basically, take a guess what year you’ll retire (within a 5 year increment) and invest in a fund with a name like Retirement 2045 or Target 2045. These funds are awesome because they do the asset allocation for you, gradually reducing your risk and moving you into income type investments rather than growth, as you get nearer to your retirement date. I use Vanguard because the expenses are so low. Fidelity is good to. Basically, you want to keep your expense ratio (Printed right on the prospectus) below 1%. 1/2% is even better.

  • malakit Said on May 4th, 2010 at 9:50 pm:

    I would select Roth IRA, you are taxed only on your contribution to your retirement, not on your total gross income and no tax when you start withdrawing at retirement. A good target is to contribute 10%-15% of your pretax income. Be sure you select a good mutual funds to invest you retirement money and diversify. Evaluate your investments every 6 months to see if you’re on your target goal. If you invest $200.00 per month there is a very good chance your ROTH will grow to over $1,500,000.00 in 30 years

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