Roth - i.r.a.

[wimpy77]

I like the Roth too. However, I have seen people get into it without really understanding the process. The worst thing that you can do is fund your Roth before putting the minimum into your regular 401K that is needed to get the full employer match. That really should be the first priority.

i agree but there are alot of employers including mine that dont match.

 

[Valerie]

I like the Roth too. However, I have seen people get into it without really understanding the process. The worst thing that you can do is fund your Roth before putting the minimum into your regular 401K that is needed to get the full employer match. That really should be the first priority.

Yes, you always want to make the most of what your employer is offering to match, no matter the type of IRA offered.

IF your employer matches in a Roth 401k the rules get complicated and are described in one of the articles I posted above.

Roth Is a Good Way to Hedge on Your Future Taxes - WSJ.com

With Roth 401(k) plans, which have been available for only a few years, you make contributions with after-tax dollars. Money can be withdrawn from the account tax-free as long as it has been held for at least five years and the investor is at least 59½. And there are no withdrawal requirements. In contrast, you can make pretax contributions to a traditional 401(k), but you have to pay tax on withdrawals, which are generally required after you turn 70½ years old.

The Roth component technically is a provision added to a traditional 401(k) plan, says Twila Slesnick, an accountant in Loveland, Colo., and co-author of "IRAs, 401(k)s and Other Retirement Plans." Employees can choose whether their salary is put in a Roth or a traditional 401(k), but any employer contribution "always goes into the regular 401(k) account and grows tax-deferred, not tax free," she says.

I found another good site that explains ROTH 401ks here:

Background of the Roth 401k

The Roth 401k provision was part of the Economic Growth and Tax Relief Reconciliation Act that became effective in 2006. As its name implies, a Roth 401k combines the contribution features of 401k plans with the tax-free growth advantage of Roth IRAs. The appeal of the Roth 401k seems too good to be true, and a recent survey conducted by benefits giant Hewitt Associates estimates that nearly 35% of companies are likely to offer this type of plan to its employees.
Roth 401k Plans

The important thing for individuals to know is that if you have a non-Roth retirement account through your employer, or no retirement account at all, and you earn less than $95,000. -- you are still eligible to have an Individual ROTH IRA as well. It is best to max out what your employer will match, plus what you can afford to set aside in this tax free growth vehicle the ROTH IRA.

Tax Deferred vs. Tax Free
The biggest difference between the Traditional and Roth IRA is the way the U.S. Government treats the taxes. If you earn $50,000 a year and put $2,000 in a traditional IRA, you will be able to deduct the contribution from your income taxes (meaning you will only have to pay tax on $48,000 in income to the IRS). At 59 1/2, you may begin withdrawing funds but will be forced to pay taxes on all of the capital gains, interest, dividends, etc., that were earned over the past years.

On the other hand, if you put the same $2,000 in a Roth IRA, you would not receive the income tax deduction. If you needed the money in the account, you could withdraw the principal at any time (although you will pay penalties if you withdraw any of the earnings your money has made). When you reached retirement age, you would be able to withdraw all of the money 100% tax free. The Roth IRA is going to make more sense in most situations. Unfortunately, not everyone qualifies for a Roth. A person filing their taxes as single can not make over $95,000. Married couples are better off, with a maximum income of $150,000 yearly.
Traditional IRA vs. Roth IRA

 

[Immanuel]

I like the Roth too. However, I have seen people get into it without really understanding the process. The worst thing that you can do is fund your Roth before putting the minimum into your regular 401K that is needed to get the full employer match. That really should be the first priority.

You know, sometimes I feel so ignored around here. I said the same thing in post #7 and I didn't get one comment and you get two later make that three with mine.

Immie

 

[Valerie]

I like the Roth too. However, I have seen people get into it without really understanding the process. The worst thing that you can do is fund your Roth before putting the minimum into your regular 401K that is needed to get the full employer match. That really should be the first priority.

You know, sometimes I feel so ignored around here. I said the same thing in post #7 and I didn't get one comment and you get two later make that three with mine.

Immie

Sorry Immie!

Post number 7:

I switched my contributions to my 401k last year (what I was putting into my 401k) to a Roth IRA. My employer did not match any contributions for the 401k and my current tax bracket is low enough that I actually should end up better off contributing to the Roth.

If my employer matched 401k contributions, I would not consider it, because the matching contributions (if they are significant) are actually earnings on the 401k, but since my employer doesn't match, I may as well use the benefits of the Roth and not risk tieing up those contributions if I should need them before retirement.

One benefit of the Roth is that if I need to use the principal for any reason ie down payment on a house, paying off credit cards etc, I can do so without the tax penalties associated with a 401k.

But, think about your situation before you make the leap from a 401k to a Roth. If your employer matches even 50 cents on the dollar up to a certain amount, remember that that is 50 cents on the dollar of earnings you will have to make up on the Roth and that is not easy to do.

Immie

Sounds like you've got it all figured out. I do not have a Roth 401k, I have an Individual Roth IRA as well as an SEP IRA. The Roth 401k through your employer sounds like a great deal IF they match it and you are able to afford to max the contribution limits, but like you said it's a lot to contribute if you don't earn enough, and the employer money does get taxed as income, etc. If they offer one or the other with no matching funds, like your employer does, it is definitely better to go with the ROTH for flexibility and no future tax ramifications.

IF your employer is not offering a ROTH and you're maxing out whatever they offer, but you still could afford to set some money aside every year, it is smart to save in a ROTH for those same reasons. It is the only TAX FREE GROWTH retirement vehicle available.

For INDIVIDUALS with no retirement account at all, if you have any savings, put your money into a ROTH IRA and begin securing your own future. That's my advice.

You can withdraw for buying your first home, you can withdraw for education, you are not required to withdraw once you reach a certain age, and did I mention, THE GROWTH IS TAX FREE!

For individuals who aren't sure what to do, you do not need to buy stocks to have an IRA. If the stock market scares you, buy bonds or CDs or a Mutual Funds. Your local bank will offer all of these vehicles and within the IRA the growth is tax free. If you go through a broker you have more options such as individual equities (stocks), commodities, ETFs, and a vast offering of mutual funds, etc. But people should know, you don't need to be rich in order to start an IRA, just go to your bank and start something for yourself. You can always expand later, if you want to go from a bank to a broker.

It's not too late to make your 2008 contribution by April 15th!

http://finance.yahoo.com/calculator/retirement/ret07

 

[Paulie]

The only thing I would suggest people do with an IRA is allot at least 20% of it in precious metals.

Right now while silver is as cheap as it is, BUY SOME. Amd grab any gold you can under $900.

That way your IRA is hedging against taxes AND inflation, the two biggest wealth killers that exist.