What is the better investment?
- Thread starter Aces_Full
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LAktownhorn
250+ Posts
roth
The idea of never paying taxes on returns is very sexy for sure, because you feel like there's less risk. But the bottom line is that if your tax bracket when you contribute is lower than the tax bracket you will be in when you withdraw the funds (i.e. upon retirement), then the Roth is the better vehicle. If not, then the traditional is better.
However, this argument is almost trivial in comparison to the decision to save for retirement, so take some relief knowing that you're making a really good decision whichever vehicle you chose.
However, this argument is almost trivial in comparison to the decision to save for retirement, so take some relief knowing that you're making a really good decision whichever vehicle you chose.
Steel Shank
1,000+ Posts
I agree with saw. I have a feeling taxes aren't going anywhere but up. We got to take care of the boomers.
nope. they won't ever change the rules on already established IRAs. everything else will be taxed (and everything that is currently taxed will be doubled, even tripled) before they'll even think of taxing the IRAs because that will be breaking a "promise". no sitting gov't is ever going to do that -- they'll be guaranteed to lose the next election.
further, taxing the IRAs is the worst way to support the boomers -- we'd be reducing their own net worth.
so, don't worry, an investment through an IRA account is just about the best way to grow (and protect) your money.
further, taxing the IRAs is the worst way to support the boomers -- we'd be reducing their own net worth.
so, don't worry, an investment through an IRA account is just about the best way to grow (and protect) your money.
Distributions from Roth IRA's don't increase the amount of Social Security income subject to income tax, while traditional IRA's do. SO say, when you retire if you have 50k of IRA distributions per year and 25K of social security checks, you'll have 71 K of adjusted gross income. WIth a 50K roth distribution and 25 k of ss, you'll have $0 adjusted gross income.
Steel Shank
1,000+ Posts
homer, just to make sure I understand - you're saying go with the Roth? That income taxes will continue to rise, so pay the taxes now - not later?
steel:
i am NOT saying that any form of IRA is inherently superior. however, that there is little risk in gov't taking away already stated benefits. they may change how it is done in the future, but it won't affect what has already been promised in the past.
as for ROTH vs. Traditional: i have a quick rule (but not a guarantee obviously) if you have 20+ years to retired, ROTH is generally better. note that this does not mean that the Traditional is better for people close to retirement. there are a plethora of variables that determine an answer on an individual basis.
bookman:
i would like to see your math. is your retirement eminent? do you no have any other form of retirement accounts (401k?)
(also remember you'll still have some taxable post-retirement income via social security and traditional 401k, so any traditional IRA withdrawals may start getting taxed from the first dollar of withdrawal).
i am NOT saying that any form of IRA is inherently superior. however, that there is little risk in gov't taking away already stated benefits. they may change how it is done in the future, but it won't affect what has already been promised in the past.
as for ROTH vs. Traditional: i have a quick rule (but not a guarantee obviously) if you have 20+ years to retired, ROTH is generally better. note that this does not mean that the Traditional is better for people close to retirement. there are a plethora of variables that determine an answer on an individual basis.
bookman:
i would like to see your math. is your retirement eminent? do you no have any other form of retirement accounts (401k?)
(also remember you'll still have some taxable post-retirement income via social security and traditional 401k, so any traditional IRA withdrawals may start getting taxed from the first dollar of withdrawal).
Steel Shank
1,000+ Posts
coolio. Just wanted to make sure I was clear.
I'm 32. I assumed I'd retire at 65 and that I'd make equal withdrawals over the next 20 years. I had a growth rate of 7% (which, I think, also meant that I had a discount rate of 7%). I also assumed my marginal tax rate at 65 would be 20%.
In terms of today's dollars, the traditional IRA was much, much better for me -- mainly because I had to discount those future tax benefits at the same rate as my growth rate. If I discount them at the expected rate of inflation, it's about even.
In terms of today's dollars, the traditional IRA was much, much better for me -- mainly because I had to discount those future tax benefits at the same rate as my growth rate. If I discount them at the expected rate of inflation, it's about even.
fratboy_legend
500+ Posts
dont forget that with a traditional, under the current rules, gains come out as INCOME, not as GAINS and will likely be subject to higher rates in the future.
trying to predict what the tax environment will be 20+ years form now is an impossibility. Just put money away - anywhere - and invest it so you have something to live off of when you retire.
I dont want to pay for any more people than i have to.
trying to predict what the tax environment will be 20+ years form now is an impossibility. Just put money away - anywhere - and invest it so you have something to live off of when you retire.
I dont want to pay for any more people than i have to.
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