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Roth IRA... advantages?
Posted on 1/13/10 at 1:54 pm
Posted on 1/13/10 at 1:54 pm
Are there any advantages when considering early retirement? I already maxed out my 401k (pre tax). Should I just add to my 401k?
Can anyone school me on this?
Can anyone school me on this?
2
Posted on 1/13/10 at 2:03 pm to AUFanInSoCal
Roth can be more beneficial than a 401k depending on your situation. However, since taxes will more than likely be higher when you retire, you are better off paying them now rather than later.
P.S. If you search Roth IRA on google, you will find enough information to last you days.
P.S. If you search Roth IRA on google, you will find enough information to last you days.
Posted on 1/13/10 at 2:22 pm to AUFanInSoCal
In the Roth your contributions are after tax and the earnings are tax-free, in either the traditional IRA or the 401 your contributions are pre-tax and all withdrawals (contributions and earnings) are taxable.
The usual argument is that the choice depends on whether you think you'll be in a higher tax bracket when you retire. Be careful with that though, because it's the *marginal* tax bracket they are talking about. Your first $15,000 or so of withdrawals from the 401 will be taxed at the lowest level of income in effect at that time. So the 401 has an edge here.
OTOH, because they are already taxed, you can withdraw contributions to a Roth at any time without penalty. Not a desirable thing but good to know if you really need it.
I personally have both a 401(k) and a Roth. This gives some a little diversification to tax risks down the road.
The usual argument is that the choice depends on whether you think you'll be in a higher tax bracket when you retire. Be careful with that though, because it's the *marginal* tax bracket they are talking about. Your first $15,000 or so of withdrawals from the 401 will be taxed at the lowest level of income in effect at that time. So the 401 has an edge here.
OTOH, because they are already taxed, you can withdraw contributions to a Roth at any time without penalty. Not a desirable thing but good to know if you really need it.
I personally have both a 401(k) and a Roth. This gives some a little diversification to tax risks down the road.
Posted on 1/13/10 at 2:53 pm to foshizzle
quote:
OTOH, because they are already taxed, you can withdraw contributions to a Roth at any time without penalty.
I thought there would be a 10% penalty before age 59.5?
This post was edited on 1/13/10 at 2:57 pm
Posted on 1/13/10 at 3:46 pm to AUFanInSoCal
quote:
I thought there would be a 10% penalty before age 59.5?
Only earnings are subject to the 10%. Your contributions can be removed at any time, you already paid taxes on them.
Posted on 1/13/10 at 4:09 pm to Cash
quote:
Only earnings are subject to the 10%. Your contributions can be removed at any time, you already paid taxes on them.
Got it! thanks
Posted on 1/13/10 at 5:56 pm to AUFanInSoCal
Section 72(t) of the Internal Revenue Code allows taxpayers of any age to take a series of substantially equal periodic payments without a 10% penalty.
These IRA distribution payments must continue for five years or until the IRA owner reaches 59½ years old, whichever period is longer. While they are receiving the money, they cannot make any changes to the payments
These IRA distribution payments must continue for five years or until the IRA owner reaches 59½ years old, whichever period is longer. While they are receiving the money, they cannot make any changes to the payments
Posted on 1/14/10 at 1:37 pm to BigErn
quote:
Section 72(t) of the Internal Revenue Code allows taxpayers of any age to take a series of substantially equal periodic payments without a 10% penalty.
These IRA distribution payments must continue for five years or until the IRA owner reaches 59½ years old, whichever period is longer. While they are receiving the money, they cannot make any changes to the payments
I just read the Section. Thanks for posting.
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