Someone Tell Me About Roth IRAs (New ? on Pg 3) | TigerDroppings.com

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CQQ
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Member since Feb 2006
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Someone Tell Me About Roth IRAs (New ? on Pg 3)


Everything I've read recommends opening a Roth IRA. Can someone give me the dumbed down version of why, what it is, and how to begin one? I understand we could open one on a site like Fidelity and put up to $5,000 per year. My concern is how to distribute it without being a financial expert.


This post was edited on 12/28 at 8:57 am



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yellowfin
Illinois Fan
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re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


you basically pay tax on the money now instead of when you take it out down the road





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TheHiddenFlask
Clemson Fan
The Welsh red light district
Member since Jul 2008
16795 posts

re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


quote:

Everything I've read recommends opening a Roth IRA. Can someone give me the dumbed down version of why


Tax free appreciation of capital

quote:

what it is


a retirement account funded with after tax dollars, that has much more lenient rules on withdrawal of principle than a traditional account.

quote:

and how to begin one?


Open an account, and fund it. Any of the big trading sites should walk you through it easily.

quote:

My concern is how to distribute it without being a financial expert.


If this is your biggest concern, just put it in a low cost (vanguard) target retirement date fund. It's the personal finance version of autopilot.






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CQQ
New Orleans Saints Fan
LC
Member since Feb 2006
11219 posts

re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


quote:

you basically pay tax on the money now instead of when you take it out down the road


This is what I get confused on. What's the difference between this and traditional? In both you are contributing money from your bank, which is from your paycheck, which has been taxed. I know I'm obviously missing something.






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TheHiddenFlask
Clemson Fan
The Welsh red light district
Member since Jul 2008
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re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


quote:

In both you are contributing money from your bank, which is from your paycheck, which has been taxed. I know I'm obviously missing something.


You can deduct traditional IRA contributions from your income (effectively pre tax).






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Fat Bastard
New Orleans Saints Fan
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Member since Mar 2009
15628 posts

re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


ok


ABOUT ROTH IRAS






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rmc
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Member since Sep 2004
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re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


It would probably be good for someone to explain the differences of withdrawing from a traditional and a roth before retirement age. I'm not 100%, but I think:
Roth - Withdraw before 59.5 tax free (you already paid), paying tax on earnings?
Traditional - Withdrawbefore 59.5, get taxed, 10% penalty on earnings, in addition to being taxed on earnings?

Is that right?



This post was edited on 8/31 at 10:19 am


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CQQ
New Orleans Saints Fan
LC
Member since Feb 2006
11219 posts

re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


quote:

You can deduct traditional IRA contributions from your income (effectively pre tax).


I think I got you. So say you make $100,000 and put $10,000 towards a traditional, you would essentially pay taxes that year on $90,000. If you make $100,000 and put $10,000 in a roth, you still pay taxes on $100,000 worth of income for that year. Right?






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GoHoGsGo06
Stanford Fan
Member since Nov 2006
4140 posts

re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


quote:

I think I got you. So say you make $100,000 and put $10,000 towards a traditional, you would essentially pay taxes that year on $90,000. If you make $100,000 and put $10,000 in a roth, you still pay taxes on $100,000 worth of income for that year. Right?
I believe this is correct. One of the reason's Roth's are pumped up is the assumptions tax rates will increase overtime, meaning paying tax today is better than paying tax later when withdrawing.






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TheHiddenFlask
Clemson Fan
The Welsh red light district
Member since Jul 2008
16795 posts

re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


quote:

I think I got you. So say you make $100,000 and put $10,000 towards a traditional, you would essentially pay taxes that year on $90,000. If you make $100,000 and put $10,000 in a roth, you still pay taxes on $100,000 worth of income for that year. Right?


Right

quote:

I believe this is correct. One of the reason's Roth's are pumped up is the assumptions tax rates will increase overtime, meaning paying tax today is better than paying tax later when withdrawing.


right.

Additionally, early on in one's career, you are likely to make the least amount of money you will make for your entire career, so it's best, even with static tax rates, to pile into a Roth at that point.






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Hand
Army Fan
far side of the moon
Member since Dec 2007
1998 posts

re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


How close to retirement are you? What's your risk tolerance? What worries you more - losing money before retirement or not having enough money for retirement? Do you plan to maintain you current living standards during retirement? What other assets and sources of income do you have for retirement? These are questions to start asking yourself because they will ultimately play into your decisions.

A Roth IRA is an individual retirement account that is taxed at your current marginal tax rates (meaning you pay taxes today). By using after tax dollars today, your account grows tax free into retirement. This is opposite of a traditional IRA which is tax deferred (meaning you pay taxes later). The is beneficial if you will be in higher tax bracket later in life (you are paying lower taxes today than you expect that would in the future). It's also beneficial for tax diversification purposes (who the heck knows what taxes will be like in the future).

Most brokers will have an automated questionnaire and a number to call so that someone that can walk you through the process.

If you want to learn more about asset allocation, I recommend reading the following (in order): The Elements of Investing, A Random Walk Down Wall Street, Fail-Safe Investing, and The Ivy Portfolio.

Like Flask recommended, target date funds automatically reallocate to more conservative investments as you get closer to retirement. You should research those.

Unfortunately, there is no fit-all magic right answer. All strategies involve some level of risk and will depend on your personal preferences and situation.

Don't let anyone talk you into investing in products that you don't understand.






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AngryBeavers
LSU Fan
Member since Jun 2012
3383 posts

re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


You're dumb not to have one and put in the max every year.





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TheHiddenFlask
Clemson Fan
The Welsh red light district
Member since Jul 2008
16795 posts

re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


quote:


Don't let anyone talk you into investing in products that you don't understand.


Agreed.

I always suggest target date funds because if people are going to just contribute and leave it be, they are the best option.

If the person is finicky and likely to pull out in bad markets, I have no advice for them.






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Fat Bastard
New Orleans Saints Fan
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Member since Mar 2009
15628 posts

re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


quote:

You're dumb not to have one and put in the max every year.


agreed...if possible.

some may not be able to afford it if they max out their 401k.






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yellowfin
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re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


quote:

some may not be able to afford it if they max out their 401k.



anyone under 40 should max roth first






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Fat Bastard
New Orleans Saints Fan
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Member since Mar 2009
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re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


quote:

anyone under 40 should max roth first


oh i agree, i am over 40 and make sure i max out my roth every year....... but some things are done differently by others. I for instance DO NOT max my 401k for many reasons i have stated before(not crazy about fund options,more money for my other investments that i prefer right now, etc). I only put up to what they match, I mean who would not at least do that?




This post was edited on 8/31 at 11:32 am


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TheIndulger
Longwood Fan
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Member since Sep 2011
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re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


I believe 5,000 is the most you can put in a Roth per year.





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CoolHand
USA Fan
Member since Dec 2011
1482 posts

re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


quote:

anyone under 40 should max roth first


With the caveat that they've contributed up to the match in their 401k first.

quote:

I believe 5,000 is the most you can put in a Roth per year.


And that's per person, so if you are married, you should be contributing $10k as a couple.



This post was edited on 8/31 at 11:47 am


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GoCrazyAuburn
Auburn Fan
Member since Feb 2010
13722 posts

re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


Late to this thread it seems, but from the looks of things, all the major points have been covered.





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crosswood
LSU Fan
ASCENSION PARISH BOYEEE !!
Member since Apr 2012
82 posts

re: Someone Tell Me About Roth IRAs (New ? on Pg 3)


ok .... not to hijack the thread .... but can someone pretend that im a 2nd grader who failed coloring book class and explain to me ( in kiddie words ) the slow mans answer to the OP's question? better yet , pretend im a caveman that transported from the past having knowledge of only two words ... bone and cook .... and break down for me what the hell Roth IRAs are , why or why not an individual should invest in one, and how one can acquire it.





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