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lsugrldej8 
LSU Fan
Watson
Member since Sep 2006
1835 posts
| Roth vs. Traditional IRA (Posted on 2/15/13 at 10:05 am)
I'm looking to starting investing in an IRA. This is my first time doing this and I don't know what are the benefits between a Roth and a Traditional IRA.
Thanks!
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Catman88
LSU Fan
Baton Rouge, LA
Member since Dec 2004
36350 posts
| re: Roth vs. Traditional IRA (Posted on 2/15/13 at 10:11 am to lsugrldej8)
How old are you?
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TigerintheNO
LSU Fan
New Orleans
Member since Jan 2004
18938 posts
 Online
| re: Roth vs. Traditional IRA (Posted on 2/15/13 at 10:14 am to lsugrldej8)
Roth is post tax, but all gains are tax free when you take it out on retirement
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Powerman
LSU Fan
Corpus Christi, TX
Member since Jan 2004
115661 posts
| re: Roth vs. Traditional IRA (Posted on 2/15/13 at 10:14 am to lsugrldej8)
I would go ROTH IRA
I have a traditional IRA because I thought I would get the immediate tax benefits but apparently my income is too high (Asian people problems)
So now I'm going to have to convert it to a ROTH
IMO if you have enough disposable income to contribute to an IRA (in addition to a 401K) it's probably because your income is high enough to where you wouldn't qualify for the immediate tax advantages of a traditional IRA anyway.
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RickAstley
LSU Fan
Reno, Nevada
Member since May 2011
1294 posts
| re: Roth vs. Traditional IRA (Posted on 2/15/13 at 10:14 am to lsugrldej8)
Hmm a quick TD search led me to these thread links:
Roth IRA's
Tax question.....regarding traditional IRA
IRA or 401K for the Self employed
Help With Roth IRA
"Real" value of a Roth IRA
Last day to contribute to Roth IRA
I didn't even scratch the surface of IRA threads 
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lsugrldej8
LSU Fan
Watson
Member since Sep 2006
1835 posts
| re: Roth vs. Traditional IRA (Posted on 2/15/13 at 10:37 am to Catman88)
quote:
How old are you?
I'm 26. I don't have a 401k with my employer. They give me an annuity every year to do with what I want. I've been working here a year so this is my first one.
This post was edited on 2/15 at 10:39 am
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Powerman
LSU Fan
Corpus Christi, TX
Member since Jan 2004
115661 posts
| re: Roth vs. Traditional IRA (Posted on 2/15/13 at 10:41 am to lsugrldej8)
You'll definitely want to look into the income limits for eligibility...
If you think your income is going to eclipse the eligibility limits anytime soon you'll probably want to look at a ROTH
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Tmacelroy12
LSU Fan
Houston
Member since Aug 2012
5489 posts
| re: Roth vs. Traditional IRA (Posted on 2/15/13 at 10:43 am to lsugrldej8)
I've heard quite a bit on both, and honestly, am not too sure which is better (of course there are several situations which warrant investing heavier than the other).
My understanding is that, if you know you are going to be in a lower tax bracket for a substantial period of time, then taxes will increase steadily after that, might as well invest heavier into Roth because of tax implications (i.e. taxing your income at a lower tax rate)
With a traditional IRA, you will be taxed upon withdrawal, and if you are trying to withdraw that while you are in a high tax bracket, you will get hit harder obviously.
It's all about how much further can you think you can go with your money. But really, the most important thing is to save as much as possible at all possible times. In the end, that's what it comes down to...
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GoCrazyAuburn 
Auburn Fan
Member since Feb 2010
9070 posts
Online
| re: Roth vs. Traditional IRA (Posted on 2/15/13 at 10:46 am to Tmacelroy12)
One isn't necessarily better or worse than the other. They are just for different types of situation to maximize benefits. The links provided above should have all the info you should need regarding the differences.
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JPLSU1981
LSU Fan
Baton Rouge
Member since Oct 2005
15908 posts
Online
| re: Roth vs. Traditional IRA (Posted on 2/15/13 at 10:59 am to lsugrldej8)
Roth
pros
-Tax free earnings and distrubtions (in other words, when you withdraw money in retirement, there are NO tax implications)
cons
-no current-year tax deduction
-it's after-tax contributions going in, so you are paying taxes on your contributions at a high rate (assuming you are at a higher tax bracket your "working" years than when in retirement)
-don't be surprised when/if they do away with Roths and don't allow any more contributions into Roth IRAs at some point in the future (any money currently in Roths would be grandfathered in, but they won't allow new contributions....I think there is a decent chance this happens within 10-20 years)
Traditional
pros
-current year tax deduction
-tax deferred growth
-getting taxed at hopefully a lower tax rate when you are in your retirement years
cons
-withdrawals are fully taxable
-in contrast to a Roth (where you pay taxes only on contributions, in a Traditional when all is said and done you will pay taxes on everything - contributions and earnings)
Best advice is that if you really need the current year tax deduction (save about $1000 depending on your tax bracket, assuming you make a $5000 contribution), then do a Traditional. If you are not concerned with the current year tax deduction, do a Roth....then you will end up only paying taxes on the contributions, but the earnings will be tax free
Also, make sure you are within the income limits.
A solid idea is to actually do both and diversify your tax implications.
This post was edited on 2/15 at 11:12 am
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Catman88
LSU Fan
Baton Rouge, LA
Member since Dec 2004
36350 posts
| re: Roth vs. Traditional IRA (Posted on 2/15/13 at 11:06 am to lsugrldej8)
At 26 I would go with a ROTH. As you get older the benefits of a Roth wear down and a Traditional IRA makes more sense for most people.
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Powerman
LSU Fan
Corpus Christi, TX
Member since Jan 2004
115661 posts
| re: Roth vs. Traditional IRA (Posted on 2/15/13 at 11:09 am to Catman88)
quote:
As you get older the benefits of a Roth wear down and a Traditional IRA makes more sense for most people.
Care to explain your logic on this one?
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foshizzle
LSU Fan
Member since Mar 2008
25118 posts
| re: Roth vs. Traditional IRA (Posted on 2/15/13 at 11:58 am to lsugrldej8)
Also bear in mind that because you have already paid taxes on Roth contributions, you can pull them back out anytime you want without paying penalties. You probably don't want to do this but it does largely remove the need to have a separate (taxable) emergency fund.
OTOH you do have to pay the tax before you contribute, whereas with the traditional IRA you pay it later. But you can't withdraw early.
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Catman88
LSU Fan
Baton Rouge, LA
Member since Dec 2004
36350 posts
| re: Roth vs. Traditional IRA (Posted on 2/15/13 at 12:51 pm to Powerman)
When you are younger your tax bracket is typically lower. So paying the taxes then saves more.
As you get older your income levels off a bit. If you run the numbers through calculators the advantages of the ROTH amount shrinks.
You are also more likely eligble for the ROTH where as when you are older that 127k/188k number starts to mean a bit more.
Most people entroll in an ROTH because they expect their tax bracket to be higher when they get older. If the OP was 40 then they are more likely to be in the same tax bracket they will be at when they retire. SO they may want to see if they can get the deductable. (Also younger people are less likely to itemize anyways so roth is the way to go there anyways)
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Powerman
LSU Fan
Corpus Christi, TX
Member since Jan 2004
115661 posts
| re: Roth vs. Traditional IRA (Posted on 2/15/13 at 1:02 pm to Catman88)
quote:
As you get older your income levels off a bit. If you run the numbers through calculators the advantages of the ROTH amount shrinks.
What if I'm assuming that future tax rates are going to go up though?
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Catman88
LSU Fan
Baton Rouge, LA
Member since Dec 2004
36350 posts
| re: Roth vs. Traditional IRA (Posted on 2/15/13 at 1:23 pm to Powerman)
Then you are fricked if you make over the ROTH limit and dont want to consider a nondeduct Traditional IRA. (If the rates go up too much more it may be smarter just to find another country though)
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