OK - ROTH IRA VS 401k ETC

[SC4EVA]

Ok - So at my job i get a 401k ESOP and some other retirement account they throw a couple dollars in once and while (this is excluding salary/bonus) I am 25 y/o have been working for almost 3 years full time putting abuout 10% in a year and have been thankfully achieving an almost 10% return per year - Heres my question - Over the weekend I watching that Suze Orman woman - And she made the arguement that you should only be contributing to your 401k the max that your company will match say 2%. Then that other 8% should be put into an ROTH IRA because of the tax benefits at retirement. Sounds plausible although the idea of the IRA and how many investment options there are sounds very daunting. Thanks for any feedback

 

[sawastea]

Here is the dilemma that arises. For someone your age, you can only max out at 4K per year in your ROTH until you make roughly 110K, then you'll need to ge ta traditional IRA. The perks here are that you can contribute the 4K to whatever funds you want. You have until 4/15/05 to contribute to 2004 ...You already paid taxes on the ROTH, so you won't get any benefits from your 1040, however, since Uncle sam already took his cut, you're growing tax free until 59.5 (whatever the age is).

401K is pre-tax, which really rocks right now. What I tend to tell people who are tight on the money is to contribute as much as your company contributes, and make sure you at least max the ROTH. Between the 401K and my IRA, I'm maxing the IRA and putting in roughly 8K into my 401K, while my company maxes at 4K, not to mention some nice tax cuts

You're at a great age to start saving for retirement. Fuck, I don't plan on working too many years, so I want to make sure that my family is taken care of.

 

[RottenWillow]

Here is the dilemma that arises. For someone your age, you can only max out at 4K per year in your ROTH until you make roughly 110K, then you'll need to ge ta traditional IRA. The perks here are that you can contribute the 4K to whatever funds you want. You have until 4/15/05 to contribute to 2004 ...You already paid taxes on the ROTH, so you won't get any benefits from your 1040, however, since Uncle sam already took his cut, you're growing tax free until 59.5 (whatever the age is).

401K is pre-tax, which really rocks right now. What I tend to tell people who are tight on the money is to contribute as much as your company contributes, and make sure you at least max the ROTH. Between the 401K and my IRA, I'm maxing the IRA and putting in roughly 8K into my 401K, while my company maxes at 4K, not to mention some nice tax cuts

You're at a great age to start saving for retirement. Fuck, I don't plan on working too many years, so I want to make sure that my family is taken care of.

uh oh. It sounds like the Roth isnt a great idea for me then since I'm not financially capable of even getting close to the max contribution each year. Over the last 14 months I've only been able to manage 1700.

 

[sawastea]

Remember that with the ROTH, your earnings will grow tax free until retirement (as they were already taxed by Uncle Sam), where you'll only pay capital gains taxes of around 15%.

 

[bran987]

Remember that with the ROTH, your earnings will grow tax free until retirement (as they were already taxed by Uncle Sam), where you'll only pay capital gains taxes of around 15%.

damn I didn't realize you have to pay CG on a Roth... In that case... say you bought Microsoft today and held it 35 years until you are 59.5... you still sell and only pay CG tax... right? So the only benefit to Roth is you can trade in and out and not pay taxes on the in and out trading profits over the next 35 years... yes?

I only started contributing last year (stupid, just didn't think about it!) 3k and 4k this year and I'm almost 26 I bet you contributed since 18 sawa?

 

[flex229]

i dont think you pay capital gains taxes when you cash out your Roth, provided you hold it for as long as youre supposed to.

could be wrong though.

Remember that with the ROTH, your earnings will grow tax free until retirement (as they were already taxed by Uncle Sam), where you'll only pay capital gains taxes of around 15%.

 

[sawastea]

i dont think you pay capital gains taxes when you cash out your Roth, provided you hold it for as long as youre supposed to.

could be wrong though.

I just did a little reading and you are correct. ROTH is totally tax free, barring you held it for 5+ years and are over 59.5 yrs old. Traditional though, is not.

 

[flex229]

a great book that has a huge section on the differences and benefits, etc. to 401k's, roth IRA's, Traditional IRAs, SEP IRAs, etc. is called "A Random Walk Down Wall Street" by Burton Malkiel. good reading..

 

[musclemuscle]

I need a roth ira for my karma

 

[sawastea]

a great book that has a huge section on the differences and benefits, etc. to 401k's, roth IRA's, Traditional IRAs, SEP IRAs, etc. is called "A Random Walk Down Wall Street" by Burton Malkiel. good reading..

I have that book @ home, hardcover and yes, it is fantastic.

 

[Razorguns]

a great book that has a huge section on the differences and benefits, etc. to 401k's, roth IRA's, Traditional IRAs, SEP IRAs, etc. is called "A Random Walk Down Wall Street" by Burton Malkiel. good reading..

Just picked it up used from amazon.com for $14. Lookin' forward to it. Thanks for the tip! karma.

 

[SC4EVA]

I think that Suze Orman has some good ideas for people in 20's in that book of her's

 

[thelion2005]

Here is the dilemma that arises. For someone your age, you can only max out at 4K per year in your ROTH until you make roughly 110K, then you'll need to ge ta traditional IRA. The perks here are that you can contribute the 4K to whatever funds you want. You have until 4/15/05 to contribute to 2004 ...You already paid taxes on the ROTH, so you won't get any benefits from your 1040, however, since Uncle sam already took his cut, you're growing tax free until 59.5 (whatever the age is).

401K is pre-tax, which really rocks right now. What I tend to tell people who are tight on the money is to contribute as much as your company contributes, and make sure you at least max the ROTH. Between the 401K and my IRA, I'm maxing the IRA and putting in roughly 8K into my 401K, while my company maxes at 4K, not to mention some nice tax cuts

You're at a great age to start saving for retirement. Fuck, I don't plan on working too many years, so I want to make sure that my family is taken care of.

This is sound advice.

I put 10% monthly into my diversified 401k and the company matched it with their stock. Every time the stock split, I sold half into the 401 with no fees.

I was also lucky enough to put 2,000 each year into IRA's and Roth IRA's.

Saving works!

 

[jdynasty]

Here's the problem with Suzie's advice, When you use your 401k, you are using pre-tzx dollars, which in turn lowers you taxable income shown to the government. You u use both a 401k and a Roth IRA, you will have to put money into the IRA with after tax dollars and then you will be tax again when you take your money out of that IRA, in essance you are getting taxed twice, not sound financial advice if you ask me.

There are other options, you can start up your own company or small business and open a SEP IRA, which allows you a max contribution of up to 48,000, no, that is not a typo

With a 401K you can only put in 14K, and 4K with the IRA for 2006.

Also some more advice, do not, I repeat do not use a regular savings account, you might be able to get 1% if you are luckly, if you want to use a form of savings account I suggest using ING or others that allow money market type accounts

Currently ING is at 3% for its orange savings account

OH, one more thing, do not get CD's, also known as Certificates of Depreciation, inflation rises faster than you would make money from this investment vehicle

 

[stuck]

Here's the problem with Suzie's advice, When you use your 401k, you are using pre-tzx dollars, which in turn lowers you taxable income shown to the government. You u use both a 401k and a Roth IRA, you will have to put money into the IRA with after tax dollars and then you will be tax again when you take your money out of that IRA, in essance you are getting taxed twice, not sound financial advice if you ask me.

There are other options, you can start up your own company or small business and open a SEP IRA, which allows you a max contribution of up to 48,000, no, that is not a typo

With a 401K you can only put in 14K, and 4K with the IRA for 2006.

Also some more advice, do not, I repeat do not use a regular savings account, you might be able to get 1% if you are luckly, if you want to use a form of savings account I suggest using ING or others that allow money market type accounts

Currently ING is at 3% for its orange savings account

OH, one more thing, do not get CD's, also known as Certificates of Depreciation, inflation rises faster than you would make money from this investment vehicle

Dead on with everything here. You gotta maximize those pre-tax retirement vehicles before you do anything else.

Last year when I had an S Corp I had an Owner-K. Similar to a SEP, but better suited if your corp employs only "officers" (ie, each person is a shareholder). This year I'm off on my own again and have the SEP IRA. In 6 months I've put away 12 grand. It's almost too good to be true.

I haven't had a savings account in 5 years. 3% on a Tax Free Money Market account as opposed to taxable 1% interest on a bank's savings account. Why give the government free money? The money market has all the same benefits - check writing, debit/ATM card, etc.

jdynasty you sure you're not my dad?

 

[bran987]

OH, one more thing, do not get CD's, also known as Certificates of Depreciation, inflation rises faster than you would make money from this investment vehicle

inaccurate. considering GMAC is paying 4.1% on a 1-year CD today, and inflation has been running under 3%, this is obviously an untrue statement. CD's will absolutely keep you up with inflation and leave you a little better off, and are 100% insured by the FDIC.

 

[mfpd]

I would say to invest in a company 401(k) up to the match. you are getting a 100% return on your money when doing that..then, max out a ROTH if you are eligible. ALL of the ROTH will be TAX FREE when you retire. $4k in a roth for 30 years at 10% will generate a nice retirement and all of the money is yours..100% tax free.

After the ROTH is maxed out, then contribute any remaining funds you have to save for retirement in the 401(k).