Roth or Traditional IRA? (pay, taxes, rate, vehicles)

[chielgirl]

I'm close to retirement, about 7 years. I'm interested in investing in some IRAs. Anyone know if traditional or Roth would be better. I'd rather pay the taxes now but I'm a financial luddite. Suggestions, anyone?

[DanielChang]

Most finance people will ask, what do you expect to be paying in taxes when you retire. Is it a lower rate than you currently pay? If so, it makes more sense to put money in traditional IRA and pay taxes when you take the proceeds out at retirement.

I'm not a tax person, so I don't know the details to your scenario.

[GreenMachine]

Originally Posted by chielgirl

I'm close to retirement, about 7 years. I'm interested in investing in some IRAs. Anyone know if traditional or Roth would be better. I'd rather pay the taxes now but I'm a financial luddite. Suggestions, anyone?

Yes, you should max out your Roth every year. You earn tax free dollars, it's like free money. I put money in my roth and then in my SEP-IRA.

You better start learning about money fast if you are to retire in 7 years.

greenie

[cdelena]

The Roth is definitely the way to go. As good as the tax deferment of an IRA is you will still pay taxes and actually lose control of your finances to an extent as there are Minimum Required Distributions starting at 70.5.

Since MRD on top of SS may put me in an undesirable tax situation at 70.5 I have embarked on a 10 year endeavor to convert my IRAs to Roth in installments to stay in a lower tax bracket.

[GreenMachine]

You will need to start saving aggressively at this point. Nothing worse than being old and poor. I've seen it happen too many times.

greenie

[evilnewbie]

Use an online calculator to find which one is the best. Could be either because its 7 years, if it was longer than I say go with Roth and if it was shorter I would say go with Traditional. It also depends on how much money you pull out each year at retirement and what tax bracket you are in now and later. I recommend you using a calculator and think about the choices. Other things to factor in is what tax bracket you would be in with a traditional IRA... etc. etc..

[golfgal]

ROTH IRA's do have some income requirements so check into those too.

[chielgirl]

Thanks, more to read about. I have about $.5M in assets including a 401k. I'm debt free and need to find other vehicles for saving.

[lara_bessinger]

Originally Posted by chielgirl

I'm close to retirement, about 7 years. I'm interested in investing in some IRAs. Anyone know if traditional or Roth would be better. I'd rather pay the taxes now but I'm a financial luddite. Suggestions, anyone?

It's been a long time since you asked this, but in my search for an answer to a similar question, I found this article, which also has some math for deciding which IRA type (Roth or traditional) to choose. Hopefully, it will benefit the lurkers on this thread.

[URL="http://irastrategy.blogspot.com/2009/02/art-of-roth-conversion.html"]Chuck McCoy's IRA Strategy Page: The Art of the Roth Conversion[/URL]

[Winter01]

I think if your household income is over a certain amount--around $155K or something like that then you cannot contribute to a Roth. I am not sure if it is based on your gross income or your adjusted income... I think it is gross, so if you are close to this income amount it might be harder to plan your contributions, etc.. It was hard for me to figure out all the restrictions, etc. so I opted for a Traditional although a lot of people have told me a Roth is a good idea if you are younger in case you have an emergency type situation where you need access to the money (not the earnings though) before you are of retirement age.

I also know that they generally raise the income restriction every year...I know just enough to be dangerous though so you should probably check with a professional. Fidelity has a good site that explains the different types of IRAs.