IRA Question

[BADBLOWN572]

I need to start up an IRA for retirement and I was under the impression that the Roth IRA was the best type to start. When I went down there, the guy was talking about traditional, Roth, Money Market, etc... My brain is fried right now trying to find out what is the best way to go. Anyone have any experience and advice?
Danny

[h2oski2fast]

Go over to RRL ask Parker. She'll more then likely know.
Later,
D

[YeLLowBoaT]

It all depends on what your goals are and what your situtaion is now. Its always better to have money in a lot of places then int just a few.
the only diff between a roth and a trad IRA is When you get taxed. You really need to sit down with some 1 and look a the "big Picture" to find out whats better for you. If some 1 won't explain to you what something means... FIND SOME 1 ELSE!

[essexjet]

Look into the Roth 401k...
The Roth 401(k), as enacted in 2001, goes into effect on 1/1/2006 and stays available through 12/31/10 before disappearing unless extended by legislative action. Actually, it could disappear sooner if pension and savings changes like those proposed by the President's Advisory Panel on Federal Tax Reform are enacted. Under the Panel's Simplified Income Tax Plan, "Save at Work" accounts would replace 401(k)'s: Save at Work plans would follow the existing contribution limits and rules for 401(k) plans, but the plan qualification rules would be greatly simplified.* Also, "Save for Retirement" accounts (with $10,000 per year contribution limits) would replace IRAs and Roth IRAs. In such a case, what would happen to Roth 401(k) balances? It would seem likely that such balances would eventually be eligible to be rolled over to a "Save for Retirement" account, which is essentially a super-charged Roth IRA. As such, any amounts contributed to Roth 401(k)'s might be thought as early contributions to a "Save for Retirement" account. Alternatively, the Panel's second proposal, the Growth and Investment Tax Plan, suggests Roth-style "Save at Work" plans** that would be similar to Roth 401(k) accounts. It's hard to imagine such Roth-style accounts being enacted to replace deductible 401(k) plans.

[HighRoller]

Go with the Roth. You get taxed up front, but later you get all the money (even appreciation) tax free when you withdraw. As of Jan 1 2006 the Roth 401K will be available as well. It's a 401K with the tax benefits of a Roth IRA. Don't know what the limit will be on putting money in the R401K, but I think you can put $4500/yr into your 2005 IRA and $5000/yr for 2006. If you fund your 2005 right now you'll have missed the appreciation on your money, but you'll still get a tax deduction.
A Money Market account is not really an investment, it's more of a savings tool. The benefit of a Money Market is liquidity. You can withdraw at any time without penalty via a debit card or writing checks. I recommend parking your emergency cash in a MM, that way you get a little bit of interest but also have access to it if needed. Just be warned: A MM account usually limits you as far as the number of transactions per month/year. It's not a good account for paying your regular bills.

[HighRoller]

Yellow has a good point about who you choose for financial advice. My rule of thumb is as follows: If you can't clearly understand and/or explain what your financial guy is recommending, get a new guy. You want someone who will explain things before he recommends. And stay away from things like cash value life insurance and annuities. They have horrible returns for everyone except the broker, who makes a huge commission on them.

[ChumpChange]

A Money Market account is not really an investment, it's more of a savings tool. The benefit of a Money Market is liquidity. You can withdraw at any time without penalty via a debit card or writing checks. I recommend parking your emergency cash in a MM, that way you get a little bit of interest but also have access to it if needed. Just be warned: A MM account usually limits you as far as the number of transactions per month/year. It's not a good account for paying your regular bills.
Also known as Reg E which states that you cannot write more than three checks per month or have more than six transfers per month as well. This is a calendar month, not anniversary. This account is not a good use of overdraft protection because of this.

[TheLurker]

I would suggest you talk with a tax / investment advisor first but here is the way I understand them
If your goal is to lower your gross income now so you pay less taxes this year do a traditional IRA.
Most people expect to have a much smaller income when they are retired so when you start making withdrawals from the IRA at 59 ½ (?) your tax liability will be minimized.
With a Roth IRA you get no tax break now but when you start your withdrawals at the designated age, the gains you will have made on those investments will be tax-free. (Remember you already paid the tax when you earned the money and set it aside.) The benefit is if you have substantial gains there are no taxes on the gains.
Being somewhat young you have a very long time for your gains to compound substantially.
The question I have with the Roth401K is
Is the only way to use this tool is if your companies savings plan offers it?
If so I don’t think many do at this time.

[Dave C]

it depends on YOU'RE goals:
Roth - after tax now, tax free distributions. earnings accumulate tax free - better the longer the holding period and greater the rate of return.
Pretax IRA - current tax deduction - taxable distributions, earnings accumulate tax DEFERRED. better if you need current tax deduction or have to lower your contribution to pay tax on the Roth.
that about sums it up.
Roth 401(k)'s only available to self employed or employees in a 401k.

[HM]

Roth IRA is good, but limited on contributions.
Regular IRA's have way too many government strings attached to them, plus, you will pay the government well over 10 x's the taxes that take you 30 years to save.
IRA's do a good job of planning the government's retirement, not yours.
Plus, why defer taxes that will likely be higher and you will have less write offs puting you in a bigger tax bracket when you make the least.
But, if you like following the lemmings off the cliff, by all means go for a traditional IRA.

[Cole1313]

Alot of gabble goop here. simple and it was said before
Roth, no benefit now, benefit upon withdrawl
Standard, benefit now, grows tax deffered, tax upon withdrawl
First make sure to max out any 401K that your employer provides you. Then look at a Roth or Standard IRA. Simple, keogh, Uni-K's, Defined Benefit or Contribution if you are self employed.
Finally once all of those are maxed out, look at investing in annuities if you still would like taxed deferral. But the money will be untouchable for a certain amount of time. Or look into a well diversified portfolio of stocks, bonds and cash.
If the guy you spoke with made your brain hurt, tell him to stop! Tell him that you do not understand. If he can not take complex financial situations and make them simple, then he himself does not fully understand the process.
I am not a tax advisor and reccomend that you speak with your CPA before deciding on any tax strategy. (disclaimer)
If you need some help PM me. Jeremy

[Cole1313]

Roth IRA is good, but limited on contributions.
Regular IRA's have way too many government strings attached to them, plus, you will pay the government well over 10 x's the taxes that take you 30 years to save.
IRA's do a good job of planning the government's retirement, not yours.
Plus, why defer taxes that will likely be higher and you will have less write offs puting you in a bigger tax bracket when you make the least.
But, if you like following the lemmings off the cliff, by all means go for a traditional IRA.
I also disagree with this! While being in a 15% tax bracket uppon retirement, some people still need the benefit of defferal now. Not every situation in the same so it is not safe to assume that a Roth is good for everyone! My opinion, not trying to ruffle any feathers.

[ROZ]

****Roth 401(k)'s only available to self employed or employees in a 401k.
:)

[ROZ]

One more thing when thinking roth: For 2006, the IRA contribution limit is $4,000 unless you are age 50 or older, then the limit is $5,000. I don't know roth 401k max contibution is... I think the traditional IRA is 25k max per year...
When these guys said pretax ira, you get an immediate 26% return (if your state takes out 8% and fed's take 18%)... just an example... I don't need to get flammed by you ultra high income earners :D

[Cole1313]

One more thing when thinking roth: For 2006, the IRA contribution limit is $4,000 unless you are age 50 or older, then the limit is $5,000. I don't know roth 401k max contibution is... I think the traditional IRA is 25k max per year...
When these guys said pretax ira, you get an immediate 26% return (if your state takes out 8% and fed's take 18%)... just an example... I don't need to get flammed by you ultra high income earners :D
The contribution limits on both the standard IRA and Roth are the same. Max on Normal employee contributions in a 401K is $14,000. And acutally on the Standard IRA it is not an immediate 26% return. It is a deduction against earned income of $4000, I.E. If you make $100,000, put $4000 in your IRA, taxable income is $96,000. This is in a standard, not a ROTH. Hope this helps.

[Flashover]

I rolled my 401K over from my previous job into a Roth and paid the taxes up front, That part sucked but when it comes time to retire at the right age it will be nice to not have any deductions. My Roth is thru Lincoln Benafit. They handeld the whole thing. Good Luck..

[HM]

I also disagree with this! While being in a 15% tax bracket uppon retirement, some people still need the benefit of defferal now. Not every situation in the same so it is not safe to assume that a Roth is good for everyone! My opinion, not trying to ruffle any feathers.
You would. Deferral of taxes to a time when you have little to no tax write offs is bad. You are only planning the government's retirement....but, feel free to run of that cliff if you like, it is a free country.
I am not talking theories. I am talking hard numbers. I sit down with clients everyday. CPAs are only been counters and are NOT financial advisors. I get down to what people need and that is how much money they will have to spend after taxes. The gobble-de-gook is the qualified plans. Lots of articles written all over about the major draw backs and all the strings attached. 401ks with matching contributions are good, but never put more than the matching amount. Roth IRA's are good, but way too limited on contributions and still too many strings. Don't say I didn't warn ya. When I show people how 401K's and IRAs and other qualified plans are just tax time bombs...the most common response is: "How come nobody ever mentions this?"
But hey, that is my business, so what the hell do I know? I know, the armchair quarter backs of HB are experts - standard operating procedure - don't listen to the professionals.
Carry on! :D

[syke-o]

i had a 401k through my old job, but put it into a rollover IRA and have it all in mutual funds (Fidelity Freedom 2040).... is this a decent way to go?? i havent contributed anything into it since rolling it over, and it is basically just sitting there.. any advice from financial guys on here??

[Lightning]

I'm a CFP (Certified Financial Planner), so if anyone has any questions on IRA's or whatever - feel free to send me a PM with your number and we can talk.

[Cole1313]

You would. Deferral of taxes to a time when you have little to no tax write offs is bad. You are only planning the government's retirement....but, feel free to run of that cliff if you like, it is a free country.
I am not talking theories. I am talking hard numbers. I sit down with clients everyday. CPAs are only been counters and are NOT financial advisors. I get down to what people need and that is how much money they will have to spend after taxes. The gobble-de-gook is the qualified plans. Lots of articles written all over about the major draw backs and all the strings attached. 401ks with matching contributions are good, but never put more than the matching amount. Roth IRA's are good, but way too limited on contributions and still too many strings. Don't say I didn't warn ya. When I show people how 401K's and IRAs and other qualified plans are just tax time bombs...the most common response is: "How come nobody ever mentions this?"
But hey, that is my business, so what the hell do I know? I know, the armchair quarter backs of HB are experts - standard operating procedure - don't listen to the professionals.
Carry on! :D
So I assume that you reccommend alot of Annuities to your clients, considering you do work for an insurance company?? So how do you explain to your clients that having pre-tax dollars set aside from their paycheck is a bad thing? Just curious, why I would want to pay 50% on my money now vs. 15% when I retire????

[Cole1313]

You would. Deferral of taxes to a time when you have little to no tax write offs is bad. You are only planning the government's retirement....but, feel free to run of that cliff if you like, it is a free country.
I am not talking theories. I am talking hard numbers. I sit down with clients everyday. CPAs are only been counters and are NOT financial advisors. I get down to what people need and that is how much money they will have to spend after taxes. The gobble-de-gook is the qualified plans. Lots of articles written all over about the major draw backs and all the strings attached. 401ks with matching contributions are good, but never put more than the matching amount. Roth IRA's are good, but way too limited on contributions and still too many strings. Don't say I didn't warn ya. When I show people how 401K's and IRAs and other qualified plans are just tax time bombs...the most common response is: "How come nobody ever mentions this?"
But hey, that is my business, so what the hell do I know? I know, the armchair quarter backs of HB are experts - standard operating procedure - don't listen to the professionals.
Carry on! :D
I am not going to get into a pissing match. But the only string that is attached is the contribution limit and time of withdrawl. Other then that you can invest in many more options. Just for kicks and giggles, how many different investment options do you have with an annuity???? VS. an IRA???
You are kind of limited to what you can invest in with an annuity HUH!!

[ROZ]

The contribution limits on both the standard IRA and Roth are the same. Max on Normal employee contributions in a 401K is $14,000. And acutally on the Standard IRA it is not an immediate 26% return. It is a deduction against earned income of $4000, I.E. If you make $100,000, put $4000 in your IRA, taxable income is $96,000. This is in a standard, not a ROTH. Hope this helps.
I may be thinking along the lines of a SEP IRA... Isn't it up to 20% of profit can roll into it pretax?
Guess I can call my pops(CPA) :D
BB575... go to http://www.aricrandall.com/ I think ...or PM Lightning on the boards... He a financial planner :)

[Cole1313]

I may be thinking along the lines of a SEP IRA... Isn't it up to 20% of profit can roll into it pretax?
Guess I can call my pops(CPA) :D
BB575... go to http://www.aricrandall.com/ I think ...or PM Lightning on the boards... He a financial planner :)
When you get in to SEP's it is best to talk to a CPA. There are different things you can do to maximize your deduction!

[JMC]

If you make close to 100k and are still young 45 and under forget the Roth. Filing jointly 160K is max income for a Roth.
Annuities are still around because the "sellers" actually write a ticket when they make a sell! And of course the insurance companies get their fair share. Most bond traders work on 1/4 to 1/2 a point. The basic annuity whether fixed or variable can pay a seller well over 5%.
How about GM (not GMAC) debt out 1 yr 3 months @ 13% Not bad....
You can get 4.5% out one year on a basic CD right now.
January of this year you had to go out 2 years to get 2.3%
Everyone should stay short right now or at least until the longer treasuries fall off. When this happens...if it does, we will be able to buy 7% CD's and all other corporate debt will be higher (besides AAA and most AA credit companies).
Lots of yield to be had out there taxable and totally state and federal tax free. How about a muni paying 5% tax free and AAA insured? If your in the higher tax bracket this could be a taxable equivalent of just under 9%. Now this wouldnt work for an IRA of course but for someone that has 100k in savings 5k a year in interest alone totally state and fed. tax free sound good to me.