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Old 03-08-2014, 03:21 PM
 
7,846 posts, read 5,286,183 times
Reputation: 4025

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I don't see any merit to the Roth IRA / 401k, despite some financial "gurus" trying to sell us on it. A few of my young friends bought, but I think it is a complete government scam to get your tax money.

Key fact:

Roth vs. Traditional Plans have no affect on the amount of investment income you will return (commutative identity of multiplication), the only difference is the tax implications.

Key gripes:

-Roth IRA's rob me of money. Rather than deferring taxes off the top to reduce my taxable income (my highest taxed dollars), I'm paying taxes on the entire spectrum of my income during my contributions, which ends up being a higher discretionary tax burden every year. When I withdraw in 40 more years, I'm back at the bottom of the tax marginal scale. Furthermore, some people choose their retirement state based on tax laws, but don't have that ready luxury while they are working.

-We have to trust that one day Congress won't raid Roth IRA funds, or make us pay the difference if the tax rates shoot up in the future. I always advocate paying Uncle Sam later, than sooner.


Discuss.

Last edited by Opin_Yunated; 03-08-2014 at 03:42 PM..
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Old 03-08-2014, 03:25 PM
 
71,511 posts, read 71,674,131 times
Reputation: 49088
well do the math....

leave your money in a taxable account and put it in equities,.


you fund it with after tax money. it is forever taxed on the gains.

for the same price of admission in after tax money the gains on the roth are never taxed.

which sounds better to you?

now roth vs traditional is a little more complex.



i prefer traditional but the reality is you can stuff more money in a roth since you are prepaying the taxes up front in a roth so you need about 6700 in the traditional to equal 5k in a roth but in a traditional you can't put that much in.

other factors are the taxable income in retirement especially RMD's can be very painful. you can end up getting your social security taxed for a lifetime because you didn't go roth.

it is going to be an individual thing with lots of comutations and assumptions.

i don't believe most americans will be in a higher tax bracket with no pay checks coming in.

many will move to lower cost states as well as tax brackets are always expanding out allowing more and more income through at lower tax rates.

even if tax rates stay the same the traditional would be ahead.

but having said that the way the traditional meshes into your retirement can be a disaster.

like i said taxed social security, high tax brackets once rmd's start at 70 1/2 and the obama care surcharge tax all are reasons you might come out ahead by keeping taxable income lower with a roth.

Last edited by mathjak107; 03-08-2014 at 03:40 PM..
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Old 03-08-2014, 03:37 PM
 
24,503 posts, read 35,425,625 times
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Quote:
Originally Posted by ErikBEggs View Post
-The Roth IRA is basically no different from setting up a personal investment account with any mutual fund / ETF company and investing. The difference is with a Roth you can only sell off your contributions. Your Roth earnings must stay put until 59.5 years old, or subject to penalty.
This is an obvious indicator that you should not advise others on finance. Simple math and the understanding of taxes will prove you wrong.
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Old 03-08-2014, 03:42 PM
 
7,846 posts, read 5,286,183 times
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Quote:
Originally Posted by NJBest View Post
This is an obvious indicator that you should not advise others on finance. Simple math and the understanding of taxes will prove you wrong.
True, I was looking at it from an early retirement scenario. You can't withdraw any Roth Earnings until 59.5...
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Old 03-08-2014, 03:43 PM
 
71,511 posts, read 71,674,131 times
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back to the drawing board you go!
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Old 03-08-2014, 03:46 PM
 
7,846 posts, read 5,286,183 times
Reputation: 4025
Quote:
Originally Posted by mathjak107 View Post
back to the drawing board you go!
Yep, thread done.

Mods, delete?
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Old 03-08-2014, 03:46 PM
 
1,862 posts, read 3,002,536 times
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I actually agree with the OP. Roths don't make sense for the average investor, who is better off taking the tax benefit now than in the future. And 'poo-poo' this all you like, who knows if Roths will still be tax free 15, 20, 30 years from now? It may already be starting to come undone. President Obama, in his new budget, is proposing that there be RMDs on Roths just like on traditional IRAs. So they will be able to indirectly tax that money. They are greasing up the slippery slope, folks. Bottom line, take the dollar today over a dollar tomorrow. A bird in the hand...
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Old 03-08-2014, 04:16 PM
 
5,607 posts, read 3,662,519 times
Reputation: 5426
Quote:
Originally Posted by ErikBEggs View Post
I don't see any merit to the Roth IRA / 401k, despite some financial "gurus" trying to sell us on it. A few of my young friends bought, but I think it is a complete government scam to get your tax money.

Key fact:

Roth vs. Traditional Plans have no affect on the amount of investment income you will return (commutative identity of multiplication), the only difference is the tax implications.

Key gripes:

-Roth IRA's rob me of money. Rather than deferring taxes off the top to reduce my taxable income (my highest taxed dollars), I'm paying taxes on the entire spectrum of my income during my contributions, which ends up being a higher discretionary tax burden every year. When I withdraw in 40 more years, I'm back at the bottom of the tax marginal scale. Furthermore, some people choose their retirement state based on tax laws, but don't have that ready luxury while they are working.

-We have to trust that one day Congress won't raid Roth IRA funds, or make us pay the difference if the tax rates shoot up in the future. I always advocate paying Uncle Sam later, than sooner.


Discuss.
What makes the government any more likely to raid a Roth IRA than a regular brokerage account?

Seriously...

Stupidest whine about these accounts you hear everywhere. My Roth is no different than my brokerage aside from how tax is paid on it. It's at a brokerage of my choice, holding what I choose to put in it, under my control. Same as the regular brokerage account.


Personally, I plan on taxes being higher (at multi decade lows right now) when I retire and to be in a higher tax bracket than I am now even in retirement. So a Roth makes sense.
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Old 03-08-2014, 05:40 PM
 
2,409 posts, read 2,638,599 times
Reputation: 1807
Quote:
Originally Posted by LordSquidworth View Post
What makes the government any more likely to raid a Roth IRA than a regular brokerage account?

Seriously...

Stupidest whine about these accounts you hear everywhere. My Roth is no different than my brokerage aside from how tax is paid on it. It's at a brokerage of my choice, holding what I choose to put in it, under my control. Same as the regular brokerage account.
Hit the nail on the head.
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Old 03-08-2014, 06:18 PM
 
7,846 posts, read 5,286,183 times
Reputation: 4025
.....welp. I opened up my brokerage.. realized I can still dump into an IRA for 2013. Just created a Roth IRA.
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