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Started By
Message
Should I contribute to Roth or Traditional?
Posted on 2/10/17 at 12:43 pm
Posted on 2/10/17 at 12:43 pm
Let me preface this by saying that I've always been a fan of the Roth. The whole pay taxes now and enjoy tax-free income at retirement always seemed like a great strategy IMO.
Well I asked my CPA to evaluate my 2016 taxes before I make any IRA contributions. If I go the Roth route, without making any retirement contributions to a traditional account, we'll be getting back $658. If I contributed at all to a traditional account, I will be getting back $303 in taxes for each $1000 put in. That being said, if I put my entire $5500 into a Roth I'd only receive a $658 return. If I put everything into a traditional I'd receive a return of $2,325, a difference of almost $1700. Are the future tax savings really that more valuable than the $1700 that I could get right now? I'm having a hard time wrapping my mind around this and any input would be much appreciated. Like I said before, I've always been a big fan of the Roth. I guess I'm just looking for some reassurance as to why I'll be passing on $1700 right now.
Well I asked my CPA to evaluate my 2016 taxes before I make any IRA contributions. If I go the Roth route, without making any retirement contributions to a traditional account, we'll be getting back $658. If I contributed at all to a traditional account, I will be getting back $303 in taxes for each $1000 put in. That being said, if I put my entire $5500 into a Roth I'd only receive a $658 return. If I put everything into a traditional I'd receive a return of $2,325, a difference of almost $1700. Are the future tax savings really that more valuable than the $1700 that I could get right now? I'm having a hard time wrapping my mind around this and any input would be much appreciated. Like I said before, I've always been a big fan of the Roth. I guess I'm just looking for some reassurance as to why I'll be passing on $1700 right now.
4
Posted on 2/10/17 at 12:52 pm to ForeverLSU02
i'm not sure if it makes most numbers sense but it certainly feels good to know you have a tax free pot down the road if you can get by in the meantime.
Posted on 2/10/17 at 12:55 pm to Chad504boy
Yeah, I don't need the money now. I'm just having a hard time convincing myself to pass on $1700 right now. 
Posted on 2/10/17 at 1:36 pm to ForeverLSU02
I think you need to double check this math and the eligibility requirements for a traditional IRA... these numbers don't make any sense at all.
Posted on 2/10/17 at 1:49 pm to geauxbears08
quote:What doesn't make sense?
these numbers don't make any sense at all.
Posted on 2/10/17 at 1:54 pm to ForeverLSU02
Getting back $303 for every $1000 would imply you're in a 30.3% marginal bracket which doesn't exist. Plus if you're straddling the 28% and 33% brackets, it would also indicate that you make way too much money to qualify for a traditional IRA deduction.
Posted on 2/10/17 at 2:03 pm to geauxbears08
quote:even if I do not have an employer sponsored retirement plan?
t would also indicate that you make way too much money to qualify for a traditional IRA deduction.
quote:The $303 is both federal and state taxes, if that makes a difference at all. I'm trying to follow you, but I'm not up to speed when it comes to taxes.
Getting back $303 for every $1000 would imply you're in a 30.3% marginal bracket which doesn't exist.
ETA: Our AGI is $138,000
This post was edited on 2/10/17 at 2:11 pm
Posted on 2/10/17 at 2:24 pm to ForeverLSU02
Whoops - I live in TX. Haven't thought about state taxes in years!
Trad IRA is totally phased out at $118k but that's on MAGI so you might be close. 98k is the start of the phase out so you may not get all of it...
Trad IRA is totally phased out at $118k but that's on MAGI so you might be close. 98k is the start of the phase out so you may not get all of it...
Posted on 2/10/17 at 2:28 pm to geauxbears08
I am not covered by a retirement plan at work so I didn't think the phase out started until 184k in those instances?
Posted on 2/10/17 at 9:23 pm to ForeverLSU02
The future tax savings will definitely be more than 1700.
The numbers are much closer if you take the 1700 and put it into the tIRA over the lifetime.
The numbers are much closer if you take the 1700 and put it into the tIRA over the lifetime.
Posted on 2/10/17 at 9:43 pm to ForeverLSU02
Put the 5500 in a traditional, get the 1700 refund and put that in a Roth
But in reality, the real advantage of the Roth is you don't have to pay taxes on the gains made, so to put in persecpctive that 5500 invested for 30 years could easily become 45,000, that you would only have to pay 1700 of income tax on (4%), one hell of a bargain in my eyes
But in reality, the real advantage of the Roth is you don't have to pay taxes on the gains made, so to put in persecpctive that 5500 invested for 30 years could easily become 45,000, that you would only have to pay 1700 of income tax on (4%), one hell of a bargain in my eyes
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