Money Matters in GR

[BGIII]

Your words echo Dave Ramsey BTW.

How does one start a Roth IRA? Should I go visit a business aquanitance at Edward Jones or is it so simple I can just do it online?

I respect Dave Ramsey but I don't agree with everything he says. I think he goes a little overboard in hopes that people will follow 60-70% of his message and if they do, they will have much improved financial health.

I have my Roth through my Edward Jones representative. I like the personal touch of having somebody to sit down with and share viewpoints. There are plenty of good online options available as well.

[Budgie Frisket]

I respect Dave Ramsey but I don't agree with everything he says. I think he goes a little overboard in hopes that people will follow 60-70% of his message and if they do, they will have much improved financial health.

I have my Roth through my Edward Jones representative. I like the personal touch of having somebody to sit down with and share viewpoints. There are plenty of good online options available as well.

Okay, I have to ask: Do you trust the Government to keep its promise about not taxing the funds you withdraw from your Roth down the line? I have a traditional IRA and a 401K. I could transfer my IRA funds to a Roth but would have to pay taxes on it because it was a tax-free investment to begin with. But with the future of Social Security so precarious, I'm not sure I trust the Feds to keep their word.

[BGIII]

Okay, I have to ask: Do you trust the Government to keep its promise about not taxing the funds you withdraw from your Roth down the line? I have a traditional IRA and a 401K. I could transfer my IRA funds to a Roth but would have to pay taxes on it because it was a tax-free investment to begin with. But with the future of Social Security so precarious, I'm not sure I trust the Feds to keep their word.

First, I would sit down with somebody who knows what they are doing concerning changing a traditional to a Roth. I wouldn't just do it based on internet chatter or barstool advice.

Second, I do not believe any laws will change regarding existing Roth's. I would not be surprised if they abolish Roths in the future because it is too advantageous to big savers that have company sponsored qualified plans already.

Was the contributions to your traditional IRA pre-tax or post-tax contributions?

[Budgie Frisket]

First, I would sit down with somebody who knows what they are doing concerning changing a traditional to a Roth. I wouldn't just do it based on internet chatter or barstool advice.

Second, I do not believe any laws will change regarding existing Roth's. I would not be surprised if they abolish Roths in the future because it is too advantageous to big savers that have company sponsored qualified plans already.

Was the contributions to your traditional IRA pre-tax or post-tax contributions?

Pre-tax.

[BGIII]

Pre-tax.

I am not well versed in the comparisons between a pre-tax traditional and a Roth. I have never been eligible for pre-tax traditional contributions because the companies I have worked for have had qualified plans. That is why I think the Roth is such a great retirement vehicle. It gives you another 4k of tax advantaged retirement savings even it you already have a 401k or SIMPLE. If it were me, I doubt I would convert to a Roth. You could always start a Roth and use it for future contributions and leave the existing dollars where they are. All savings plans are better than doing nothing so don't second guess yourself.

[Budgie Frisket]

I am not well versed in the comparisons between a pre-tax traditional and a Roth. I have never been eligible for pre-tax traditional contributions because the companies I have worked for have had qualified plans. That is why I think the Roth is such a great retirement vehicle. It gives you another 4k of tax advantaged retirement savings even it you already have a 401k or SIMPLE. If it were me, I doubt I would convert to a Roth. You could always start a Roth and use it for future contributions and leave the existing dollars where they are. All savings plans are better than doing nothing so don't second guess yourself.

I'm with you on just starting a Roth. I think converting would be an absolute nightmare at this point.

[DwntwnGeo]

I'm with you on just starting a Roth. I think converting would be an absolute nightmare at this point.

For what it is worth, it isn't very difficult to convert a traditional IRA to a Roth IRA. There would be an additional form to fill out at tax time and you will have to pay "tax" on the amount the traditional IRA is worth at the time of conversion.

The one thing that people need to know about conversions is that you will be increasing your "income" by the amount that you transfer, so you will want to make sure it doesn't bump you into the next tax bracket by doing the conversion. As I have done with mine, you can spread your conversions over several years to decrease the risks of paying a higher tax bracket.

[GRDadof3]

Everything I've been told is that you should NEVER convert from an IRA or 401K to a ROTH. I'm pretty sure you will not only pay taxes on the IRA, but also a huge penalty if it is an early withdrawal. Much of this also depends on your age and your retirement plans, so you should seek the advice of a one-on-one professional as BGIII said.

[DwntwnGeo]

Everything I've been told is that you should NEVER convert from an IRA or 401K to a ROTH. I'm pretty sure you will not only pay taxes on the IRA, but also a huge penalty if it is an early withdrawal. Much of this also depends on your age and your retirement plans, so you should seek the advice of a one-on-one professional as BGIII said.

You are correct and should consult the advice of a professional. Two different professionals have agreed in my situation that it would be alright for me to do the conversion from a traditional to a ROTH (for my IRA, I was unaware that you could or would want to convert your 401K). In my case this is considered a conversion of monies and in no way is it treated as an early with-drawal and than re-investment. I cannot remember the offical tax form that I had to file with my tax forms, but I can find out if anyone is interested. As GRDad and BGIII both mentioned, it might be a good idea to consult a professional before doing anything on your own.

[3xxUnionSq]

But in your example to invest $4,000 in the Roth IRA you had to earn $5,000, pay $1,000 in taxes, and then invest the rest. Whereas in the 401k you only had to earn $4,000 and pay no taxes yet. So again, it comes out even.

Really it comes down to whether you think taxes will be higher or lower in the future. If taxes are going to be lower than they are now when I retire, the 401k will win, and it would pay to defer the taxes. But if taxes are low now and will likely be higher in the coming years it would be better to pay them up front and the Roth IRA will win. Good luck predicting taxes 30 years from now though.

I wish I still had my financial calculator though. I think how quickly you draw from each account at retirement may be a factor, but I'd like to run some numbers to be sure.

One really interesting thing I did take out of my college finance class was that even if life expectancies increase dramatically the retirement age won't need to increase with it. With the compounding accound value eventually you get to a point where you can pretty much live indefinitely off your retirement account. Again, if I can my financial calculator back (I broke it, unfortunately) I'd post some numbers.

-nb

FWIW - ...TODAY, taxes are at historical lows. Today the Roth IRA might make more sense for this reason.