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Started By
Message
Someone Tell Me About Roth IRAs (New ? on Pg 3)
Posted on 8/31/12 at 9:38 am
Posted on 8/31/12 at 9:38 am
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 12/28/12 at 8:57 am
9
Posted on 8/31/12 at 9:58 am to CQQ
you basically pay tax on the money now instead of when you take it out down the road
Posted on 8/31/12 at 9:59 am to CQQ
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.
Posted on 8/31/12 at 10:10 am to yellowfin
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.
Posted on 8/31/12 at 10:13 am to CQQ
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).
Posted on 8/31/12 at 10:17 am to CQQ
ok
ABOUT ROTH IRAS
ABOUT ROTH IRAS
Posted on 8/31/12 at 10:18 am to CQQ
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?
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 8/31/12 at 10:19 am
Posted on 8/31/12 at 10:27 am to TheHiddenFlask
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?
Posted on 8/31/12 at 10:45 am to CQQ
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.
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?
Posted on 8/31/12 at 10:47 am to GoHoGsGo06
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.
Posted on 8/31/12 at 10:51 am to CQQ
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.
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.
Posted on 8/31/12 at 11:06 am to CQQ
You're dumb not to have one and put in the max every year.
Posted on 8/31/12 at 11:06 am to Hand
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.
Posted on 8/31/12 at 11:15 am to AngryBeavers
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.
Posted on 8/31/12 at 11:21 am to Fat Bastard
quote:
some may not be able to afford it if they max out their 401k.
anyone under 40 should max roth first
Posted on 8/31/12 at 11:31 am to yellowfin
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 8/31/12 at 11:32 am
Posted on 8/31/12 at 11:38 am to CQQ
I believe 5,000 is the most you can put in a Roth per year.
Posted on 8/31/12 at 11:45 am to yellowfin
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 8/31/12 at 11:47 am
Posted on 8/31/12 at 12:40 pm to CQQ
Late to this thread it seems, but from the looks of things, all the major points have been covered.
Posted on 8/31/12 at 12:42 pm to CoolHand
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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