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Roth IRA

Discussion in 'Money Talk$' started by PastorSBC1303, Jul 20, 2007.

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  1. PastorSBC1303

    PastorSBC1303 Active Member

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    I am contemplating opening up a Roth IRA.

    Anyone have one of these?

    Care to share the pros and cons?

    Is there a minimum amount you have to start out with to open one?

    Where is the best place to go to open one?

    Thanks for any thoughts yall have!
     
    #1 PastorSBC1303, Jul 20, 2007
  2. rsr

    rsr <b> 7,000 posts club</b>
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    The pros: The earnings are tax-exempt (so long as you don't make early withdrawals).

    The cons: Your contributions are fully taxable, unlike with a traditional IRA (whose distributions are taxable, but contributions are not.)

    Whether a Roth or traditional IRA makes more sense depends on several factors, including your age and what you expect your retirement income to be.

    My opinion is that either one is better than not having one.

    It depends on where you buy it. Banks will open very small accounts, but you're limited to bank-rate interest. Many mutual fund companies will accept small accounts if you agree to have regular contributions taken from your bank account.

    It depends on what type of account you want. If you want stocks, mutual funds, etc., you can go through an investment company or broker. If all you want to do is sock the money away safely, a bank will gladly take your money.
     
    #2 rsr, Jul 20, 2007
  3. webdog

    webdog Active Member
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    I'm in the same boat. I'm about to open a joint account with my son...and my wife will open a joint one with our soon to be newborn.

    The maximum annual contribution is currently 2500 per person, I believe, or 5000 per couple. These amounts will be going up. I plan on contributing the max for my son / other child for 10 years to fund their retirement. If I contribute the max for this period, they each will have something like over 1.8 million at retirement. They can pay for college...I'll pay for their retirement. :)

    You can go to your local bank to open it, or any bank to open one.

    Pro's of Roth IRA's are they are tax free for life.
     
    #3 webdog, Jul 20, 2007
  4. TomVols

    TomVols New Member

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    The general rule of thumb is this: if you're going to be in an equal or higher tax bracket at retirement, go with a Roth. Otherwise, a traditional is good. However, that's the conventional wisdom, and I often eschew that. It may make a heck of a lot of sense for other reasons. I'll go into those when I have a little more time.

    PastorSBC...are you a participant in Guidestone? Your 403b contributions can be free of income tax if you designate them as housing allowance upon disbursement. They have IRAs too. Vanguard has some good ones with low loads (or, no loads maybe).

    I do want to come back to this.
     
    #4 TomVols, Jul 20, 2007
  5. Pastor Larry

    Pastor Larry <b>Moderator</b>
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    Tom

    I wonder about the tax bracket argument.

    This year, the max contribution is $5000 (has been $4000 for a few years after being $3000). No matter what tax bracket you are in, X% of $5000 is going to be a lot less than the same percentage of $160,000.

    I have a Roth converted from a traditional and I try to max it out every year. I don't see any need to have a traditional IRA unless perhaps one is in a very high tax bracket now and the IRA contribution will change the tax bracket you are in.
     
    #5 Pastor Larry, Jul 21, 2007
  6. PastorSBC1303

    PastorSBC1303 Active Member

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    I am a part of Guidestone. I just wanted to get something in addition to that and thought a Roth would be a good option.
     
    #6 PastorSBC1303, Jul 21, 2007
  7. SaggyWoman

    SaggyWoman Active Member

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    TomVols, If it was me, I would put more in Guidestone. RIght now, I am at a job that they match whatever I put in, up to 3% of income. I am at 2% right now. If I am here til next Jan, I will up it to 3%.
     
    #7 SaggyWoman, Jul 25, 2007
  8. TomVols

    TomVols New Member

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    Roths are good options. I would certainly start one before marginal tax rates rise.

    Roth 401(k) plans are now more prevalent, too. Those work the same way as Roth IRAs to an extent.

    But back to Roth IRAs. Remember that there are income guidelines you have to meet in order to be eligible. Your modified adjusted gross income (MAGI) cannot exceed certain limits. You can also convert a traditional IRA to a ROTH if you meet certain guidelines and are willing to pay a penalty.

    Maximum Annual Contribution Levels (for 2007 tax year)
    While you can contribute to both a Traditional IRA and a Roth IRA in the same year, the total contribution is limited to the individual and joint filer limits shown above. IOW, you can't put 4k in a Roth and 4k in a Trad if you're single or single-filer.

    Your IRA contribution cannot exceed your taxable income.

    Another big by the way: if your MAGI is above a certain level and you're in a traditional 401k already, the traditional IRA isn't even an option.

    IRS publication 590 has a lot of info about IRAs.
     
    #8 TomVols, Jul 25, 2007
    Last edited by a moderator: Jul 25, 2007
  9. rsr

    rsr <b> 7,000 posts club</b>
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    Any additional advantage of the Roth IRA is that contributions - as opposed to earnings - may be withdrawn without tax liability at any time (since you've already been taxed on those contributions.)

    Further, because qualified distributions are nontaxable, large amounts can be withdrawn, for example, to start a business, buy a house, etc., without incurring income tax liability.
     
    #9 rsr, Jul 27, 2007
  10. TomVols

    TomVols New Member

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    Correct. However, if you withdraw to buy a home (First home?) you aren't taxed/penalized. But aren't you penalized for any other withdrawl prior to 59 1/2?
     
    #10 TomVols, Jul 27, 2007
  11. rsr

    rsr <b> 7,000 posts club</b>
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    You can withdraw up to $10,000 (lifetime limit) for purchase of a first home without penalty or tax. It's one of the exceptions allowed (along with payment of extraordinary health care costs, college costs and some other items.)

    In addition, you may withdraw contributions at any time without tax or penalty. For example, if you had a Roth worth $10,000 - $8,000 contributions and $2,000 earnings - and you withdraw $5,000, the withdrawal will be treated as having been solely from contributions, which already have been taxed and are not subject to further tax or the penalty.

    If you withdraw the entire amount before 59½ (or older, because the plan must be five tax years old for the distribution of earnings to be qualified) and do not meet any of the exceptions, you will owe no tax or penalty on the $8,000, but you will owe taxes and penalty on the $2,000 of earnings.
     
    #11 rsr, Jul 28, 2007
    Last edited by a moderator: Jul 28, 2007
  12. TomVols

    TomVols New Member

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    Right. I just thought the college costs and medical bill provisions didn't apply to Roths.
     
    #12 TomVols, Jul 28, 2007
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