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Old 03-27-2012, 07:45 AM
 
170 posts, read 179,426 times
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Smile Roth IRA vs Regular IRA: Age 60

Was advised by accountant to move a bit of cash into an IRA.

ROTH's offer better withdrawal tax savings later, I think? But at age 59 now, would a regular IRA with tax deferral up front make more sense since I will be withdrawing $ after 5 yrs at a lower tax bracket???

Thanks!
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Old 03-27-2012, 07:53 AM
 
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Its not so much about time as it is about gains and your tax brackets now and at retirement ..

We did little in gains the last 12 years but more than doubled from 2008.....
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Old 03-29-2012, 10:50 AM
 
Location: Florida
482 posts, read 424,673 times
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Quote:
Originally Posted by merriweather View Post
Was advised by accountant to move a bit of cash into an IRA.

ROTH's offer better withdrawal tax savings later, I think? But at age 59 now, would a regular IRA with tax deferral up front make more sense since I will be withdrawing $ after 5 yrs at a lower tax bracket???

Thanks!
Probably regular IRA but more info is needed.

What you are saying is that you will pay more taxes now on the money you put in the Roth than you would expect to pay when you take it out of a regular IRA. You are also "saying" the money will not stay in the Roth for enough years to earn a lot of money. Roth's are very good because the increased value of the account is never taxed. But if the growth is going to be small then maybe it is not worth it.
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Old 03-29-2012, 01:25 PM
 
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at your age, it's probably a wash

regular IRA, you pay no income tax on money you put in.
so you have more in the account early
so in theory more "principle" to build capital gains on.
But you will pay tax on all the money, you withdraw, at the time you withdraw, probally at a lower tax brancket.

A Roth, you pay income tax on the money, before you put in in.
so you have smaller amount of money to start, so in thorey will make less off the "principle". but pay no tax on any withdrawals.

This is assuming you will have exact same money to deposit.
and not pay tax on Roth and add money to bring up deposit to same as regular IRA.

ROTH's are better for younger workers, where you pay the tax and have a lot of time for the inital deposit to grow. At withdrawal time, none of it is taxed.

For older workers with not a lot of sitting time, the 2 pretty much work out the same. For older workers, IMO, the edge goes to regular IRA, in that you will pay a lower tax assuming you have stopped getting a regular paycheck.
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Old 03-29-2012, 02:11 PM
 
Location: We_tside PNW / CO / SA TX / Thailand
10,462 posts, read 16,558,921 times
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Also consider to which 'pot' this cash (Asset) will go.

If High gain / risk; and later withdrawal, ROTH will win hands down (depending on tax bracket right now).

As an early retiree (with many yrs yet to earn / pay taxes). I am fortifying my several ROTHs.

I feel (Guess) tax free income will be valuable asset in the not-to-distant future.

The ROTH has TONS of flexibility (especially for younger set, and being able to withdraw contributions (after 5 yrs), while you let earnings grow.) Thus I set my kids up with ROTHs as soon as they had earned income (age 12).

I am positioning as much as reasonable into tax-free / real estate LTCG. AND I rolled all my 1031's while under Bush Tax reduction. I may be wrong, but my effective tax rates have been very low for the last 6 yrs, and I have been re-adjusting my cost basis while getting by with peanuts in taxes (Usually below 7% of AGI). This yr I got burnt (8%) due to a ROTH conversion in 2010 that I spread over 2 yrs... I had some 'wage' & SE income this yr and saw how that REALLY messes with your 'take-home'.. FICA, SS, UI, L&I, WC... they all want their CHUNK of it.

You can run a quick scenario Traditional IRA vs, Roth. Some years I have done a portion of each, or a deductible Traditional, then rolled it immediately. (take the deduction for current yr, if tax rate will be low next. Then roll it day 1, to shelter earnings (in ROTH) tax free.)
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Old 03-29-2012, 02:19 PM
 
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The time involved is really not a factor. If tax rates are the same and gains are the same time plays no part in which is better.

In fact based on time the traditional did better as over the last 40 years taxes have dropped big time.

The roth will only do better if tax rates rise to a point where your income is higher with no pay checks than it is now with possibly 2 incomes coming in.

The more accumulation in a roth is because you can only put 5k pretax in a traditional. If your in the 25% tax bracket than with the roth your actually spending about 6600.00 pretax to get that 5k in a roth...... The dollars arent equal that your utilizing.

putting 6600 in a 401k is the same expenditure pretax as 5k in a roth with the additional 1600.00 prepaying the taxes at a 25% tax rate in the roth . that will yield identical results given the same gains and tax rates..


Time is not a factor in either case...


if you were just talking ira's you would have to put 5k in the roth and then 5k in the tradional with another 1600.00 in a tax free bond to even up the amounts. then your spending 6600 pretax in both cases.

Last edited by mathjak107; 03-29-2012 at 02:33 PM..
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Old 03-29-2012, 03:07 PM
 
Location: Baltimore, MD
2,095 posts, read 1,343,184 times
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This discussion of taxation makes my head hurt. I am 60 years old and intend to continue contributing to a Roth as long as I am able to do so.

There are several reasons I like the Roth IRA.

1) If my Roth account shows a balance of say, $100,000 - then $100,00 is the exact value of the asset. I don't have to think of its value in terms of pretax, post tax, etc.

2) If I'm lucky, each of my children will inherit their share of the Roth and the funds will continue to grow tax free until they retire. Given that those who are near retirement or currently retired seem intent on bankrupting future generations, it's the least I can do to add some security to my kids' "golden" years.

3) I don't anticipate paying taxes on Social Security income, but if for some reason this looks like a possibility, I can withdraw funds from the Roth to keep my overall income below the threshold. As you know, Roth withdrawals, unlike other nontaxable income, is not included for purposes of calculating taxes owed on Social Security.

I know these reasons may not make sense to a sophisticated investor, but, hey, my Roth helps me sleep at night.
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Old 03-29-2012, 03:19 PM
 
27,204 posts, read 22,654,172 times
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lenora ,im laughing because we have been making each others hair hurt with the ss calculations lol.

anyway what i wanted to illustrate is that time is no factor and the tax free compounding will work out the same as the traditional assuming you equal up the amounts and the tax brackets are about the same.

if you took 5k of your pretax income and threw it in your 401k you would have 5k in the 401k. . whether it took 2 years,10 years 0r 20 years to double it doesnt matter .

so lets say it doubled 10 years later .. you would have 10k and lets say your in the 25% tax bracket , thats 7500.00 after taxes.

lets take the same 5,000 pretax money and assume a 25% tax bracket . that equals 3750 going in the roth and 1300 of the 5k prepaying the taxes up front.


lets double that over the same 10 years at the same gains. hmmmmmm that equals 7500.00.....

its exactly the same in both cases . it doesnt matter how long you let things run as long as taxes and the total returns are the same the results will always be the same.

what many people figure wrong is they are throwing 5k in their roth but not counting the fact they are really paying the taxes up front with additional money from ther income.

they then compare 5k in the traditional ,subtract the taxes from the pile of ira money and not figure paying the taxes with other income outside the ira like in the case of the roth.

they dont compare the same amounts of pretax money utilized.

Last edited by mathjak107; 03-29-2012 at 04:09 PM..
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Old 03-29-2012, 03:35 PM
 
Location: Baltimore, MD
2,095 posts, read 1,343,184 times
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Quote:
Originally Posted by mathjak107 View Post
lenora ,im laughing because we have been making each others hair hurt with the ss calculations lol.

anyway what i wanted to illustrate is that time is no factor and the tax free compounding will work out the same as the traditional assuming you equal up the amounts and the tax brackets are about the same.

if you took 5k of your pretax income and threw it in your 401k you would have 5k in the 401k. . whether it took 2 years,10 years 0r 20 years to double it doesnt matter .

so lets say it doubled 10 years later .. you would have 10k and lets say your in the 25% tax bracket , thats 7500.00 after taxes.

lets take the same 5,000 pretax money and assume a 25% tax bracket . that equals 3750 going in the roth and 1300 of the 5k prepaying the tax es up front.


lets double that over the same 10 years at the same gains. hmmmmmm that equals 7500.00.....

its exactly the ame in both cases .

the time to double or triple doesn't matter ,the results will always be the same whether its 2 years or 20 years.
Oh, I understand the total amount saved is the same. But I'm still bypassing the calculations!

BTW, I was able to analyze the 90+ page "Affordable Care Act" transcript (from the first day of testimony) regarding jurisdictional issues without my head exploding (although admittedly I was almost ready to give up after the first several pages.) But when I start reading an article or post where there are lots of figures, formulas, or unfamiliar investment terminology, my eyes glaze over and my brain freezes. That is why I enjoy reading your posts; I can read the first and last sentence and get the gist of it.
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Old 03-29-2012, 03:39 PM
 
27,204 posts, read 22,654,172 times
Reputation: 14233
im going to take a stab at that link you posted later. you really got me compelled to fully understanding just what they do when you work and give up some ss.
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