Traditional or Roth IRA?

[drew_hawk]

Question for those HROT'ers out there who are well-versed in long-term investment and the different forms of IRA's:

What type of retirement investment account would you recommend to someone who already has a decent 401k built up and is considering opening a supplementary retirement account? In this case the target would be to invest around 5-7k per year for the next 30 years in hopes of building a solid foundation for a meager but comfortable retirement. Appreciate any and all input!

 

[HROT]

If you make under the Roth max income limits - go with Roth IRA

 

[chonk]

Question for those HROT'ers out there who are well-versed in long-term investment and the different forms of IRA's:

What type of retirement investment account would you recommend to someone who already has a decent 401k built up and is considering opening a supplementary retirement account? In this case the target would be to invest around 5-7k per year for the next 30 years in hopes of building a solid foundation for a meager but comfortable retirement. Appreciate any and all input!

What is your marginal tax rate? If you are 24% or lower, I would do Roth for 2024 and 2025, then see what the tax rates end up being going forward and make your best decision each year. You don’t have to pick one now and stick with that for 30 years.

 

[THE_DEVIL]

yes

 

[TunzaHawk]

With the 10 year payout requirement for non spouse beneficiaries, the traditional tax deferred accounts are less attractive than Roth options to accumulate wealth

 

[alaskanseminole]

Question for those HROT'ers out there who are well-versed in long-term investment and the different forms of IRA's:

What type of retirement investment account would you recommend to someone who already has a decent 401k built up and is considering opening a supplementary retirement account? In this case the target would be to invest around 5-7k per year for the next 30 years in hopes of building a solid foundation for a meager but comfortable retirement. Appreciate any and all input!

Pros and cons to both. So, in addition to my 401K, I have both a Roth and Trad IRA.

 

[thewop]

If you qualify, max out your Roth before funding the traditional.

 

[luvmyhawks]

More than likely the roth will be the best option but it is impossible to say without knowing a lot more information. If you are already contributing to a 401k, depending on your income, you would not likely get the income reduction benefit by contributing to the traditional IRA. If you are under those income thresholds, why would you care about the tax deferability?

Unless of course, you make too much for the roth. The you are SOL and just make contributions to a traditional brokerage/taxable account.

 

[luvmyhawks]

If you qualify, max out your Roth before funding the traditional.

Well, if you are maxing it out, you can only do one or the other.

 

[onlyTheObvious]

Some of both but I wish I did more Roth.

Roth draws don’t count as income so you can make yourself look poor for ACA insurance.

 

[StormHawk42]

If you make too much for a Roth contribution, you could always do a backdoor Roth.

A lot of the equation is about your tax rate and whether you want to pay 22% on it now or take your chances and see if you’ll be in a lower bracket when you retire.

Or you could just hedge and contribute to both so long as the contribution doesn’t exceed the max.

 

[hawklaw1212]

if under income limit, roth for sure. you dont want all of your retirement accounts to be pre-tax. nice to have a balance between pre and post tax.

 

[Obviously Oblivious]

I agree with most here that the Roth is the better option for most people’s situations, but not always.

 

[AreWeCross]

What is your tax bracket now? What do you think it will be in Retirement? Do you live in a state with income tax now? Will you live in a state where retirement income is not taxed in retirement?

 

[Randy Marsh]

If you make too much for a Roth contribution, you could always do a backdoor Roth.

A lot of the equation is about your tax rate and whether you want to pay 22% on it now or take your chances and see if you’ll be in a lower bracket when you retire.

Or you could just hedge and contribute to both so long as the contribution doesn’t exceed the max.

Can you or someone ELI5 the back door option please? I can’t seem to wrap my head around it. I understand the concept of putting it in as Traditional IRA and converting same day to Roth. But aren’t there limitations if you have certain accounts already?

I’ve rolled previous employer sponsored plans into both a Traditional IRA and a Roth IRA so I’m not sure if I can do the back door.

 

[luvmyhawks]

Can you or someone ELI5 the back door option please? I can’t seem to wrap my head around it. I understand the concept of putting it in as Traditional IRA and converting same day to Roth. But aren’t there limitations if you have certain accounts already?

I’ve rolled previous employer sponsored plans into both a Traditional IRA and a Roth IRA so I’m not sure if I can do the back door.

Back door Roths while having an existing traditional Ira, especially with one that has substantial assets is very complicated, and frankly, probably shouldn’t be done. If you don’t have a current trad, easy peasy.

 

[Randy Marsh]

Back door Roths while having an existing traditional Ira, especially with one that has substantial assets is very complicated, and frankly, probably shouldn’t be done. If you don’t have a current trad, easy peasy.

Thanks. That was similar to the impression I had so I’ve stayed away. It appears that has been the correct decision.

 

[StormHawk42]

Can you or someone ELI5 the back door option please? I can’t seem to wrap my head around it. I understand the concept of putting it in as Traditional IRA and converting same day to Roth. But aren’t there limitations if you have certain accounts already?

I’ve rolled previous employer sponsored plans into both a Traditional IRA and a Roth IRA so I’m not sure if I can do the back door.

I’ll take the scenario of no money in either a traditional IRA or Roth IRA first. If you make too much money to contribute directly to a Roth, then you also make too much money to make a deductible (pre-tax) contribution to a traditional IRA. So the way you get around the Roth limit is to make a nondeductible (after-tax) contribution to the traditional IRA and then convert it to a Roth. It’s after-tax money so there won’t be any tax on the conversion itself. The trick here is to make sure the after-tax money doesn’t get commingled with any pre-tax money already in the traditional IRA.

Then there’s the scenario of already having money in a traditional IRA and converting chunks or all of it to a Roth. Assuming it is pre-tax money, by converting that amount to a Roth, it becomes taxable at that time and then you get the tax-free growth afterwards. People usually make that move when they have room to fill up their existing tax bracket or when the market has had a bad year.

Edit: I see @luvmyhawks beat me to the punch

 

[hawkedoff]

Interesting twist. My employer just offered a Roth 401k. No income limit to contribute. Gets the same match. I have decided to stay with the traditional 401k because the tax deduction now matters more for me than the idea of no tax on distributions later.

I make too much for to contribute to the ira for traditional or Roth. The Roth 401k gave me pause but I can't see how I can give up the tax deduction now. Thoughts?

 

[StormHawk42]

Interesting twist. My employer just offered a Roth 401k. No income limit to contribute. Gets the same match. I have decided to stay with the traditional 401k because the tax deduction now matters more for me than the idea of no tax on distributions later.

I make too much for to contribute to the ira for traditional or Roth. The Roth 401k gave me pause but I can't see how I can give up the tax deduction now. Thoughts?

Depending on your age, I would agree that the tax deduction would have meant less at a younger age than it does now. But still, having a pot of tax free money in retirement might be a nice piece of mind for you. Might consider splitting your contribution between the two as a hedge.

 

[drew_hawk]

Follow up question: which index funds would you recommend planting your Roth IRA capital investments into? These are the top contenders I'm considering at the moment:

• Fidelity S&P 500 Index Fund
• Invesco QQQ Index Fund
• Vanguard Mega Cap Growth Index Fund ETF
• Schwab US Large-Cap Growth ETF

 

[The Tradition]

I think it really sucks that we have to go through all these financial gymnastics because of the government.

 

[hawkcub]

Interesting twist. My employer just offered a Roth 401k. No income limit to contribute. Gets the same match. I have decided to stay with the traditional 401k because the tax deduction now matters more for me than the idea of no tax on distributions later.

I make too much for to contribute to the ira for traditional or Roth. The Roth 401k gave me pause but I can't see how I can give up the tax deduction now. Thoughts?

Don't forget earnings and withdrawals aren't taxable at retirement with the Roth 401K.

 

[StormHawk42]

Follow up question: which index funds would you recommend planting your Roth IRA capital investments into? These are the top contenders I'm considering at the moment:

• Fidelity S&P 500 Index Fund
• Invesco QQQ Index Fund
• Vanguard Mega Cap Growth Index Fund ETF
• Schwab US Large-Cap Growth ETF

Depending on how much you’ll have in the account, you can’t really go wrong with any of them but if you’re just starting out, I’d just do the SPY ETF (SP 500). If you really want to have 2, put some in QQQ.

The large cap growth funds will have a ton of crossover with the S&P.

 

[wilson reborn]

How do I get rich fast? Willing to take risks.

 

[NoleATL]

Question for those HROT'ers out there who are well-versed in long-term investment and the different forms of IRA's:

What type of retirement investment account would you recommend to someone who already has a decent 401k built up and is considering opening a supplementary retirement account? In this case the target would be to invest around 5-7k per year for the next 30 years in hopes of building a solid foundation for a meager but comfortable retirement. Appreciate any and all input!

You need after tax money available for health insurance etc, especially if you plan on retiring early.

 

[alaskanseminole]

How do I get rich fast? Willing to take risks.

Porn

 

[NoleATL]

How do I get rich fast? Willing to take risks.

Show feet on OF

 

[drew_hawk]

Show feet on OF

I sucked on a girls feet last night, and I woke up with less money than I started with. Try another one.

 

[NoleATL]

I sucked on a girls feet last night, and I woke up with less money than I started with. Try another one.

You did it wrong

 

[Brian_Fantana]

$100k on red and double 4 times.

5 is greedy

 

[drew_hawk]

$100k on red and double 4 times.

5 is greedy

 

[SA_Hawk]

How do I get rich fast? Willing to take risks.

Crypto

 

[Brian_Fantana]

That just turns into 1.6m and seeing 4 red in a row starts to get to people’s senses, so stop at 5. Most people cannot comprehend that every roll is independent

 

[markfromj]

Roth draws don’t count as income so you can make yourself look poor for ACA insurance.

Seeking ACA already locks in the “I’m poor” thing.

 

[markfromj]

I think it really sucks that we have to go through all these financial gymnastics because of the decisions we’ve made as voters.

FIFY.

 

[Phenomenally Frantastic]

Unless of course, you make too much for the roth. The you are SOL and just make contributions to a traditional brokerage/taxable account.

Incorrect. Backdoor Roth contribution is possible.

Step 1: open IRA
Step 2: open Roth IRA at same broker
Step 3: contribute up to $7000 to the IRA
Step 4: backdoor convert the $7K to the Roth
Step 5: Select your investment in the Roth

This only pertains to folks with high income that exceed the standard Roth account contribution.

Vanguard has this option clearly marked on an IRA account. Also, one can convert any prior year contributions and investments to the Roth as well. However, you will be required to pay income taxes on any prior earnings over and above your contribution amounts. So be prepared for that.

Consult with your financial advisor. When the IRA funds are put into your Roth, they become tax free on growth and withdrawal. Best investment account type out there.

Backdoor Roth IRA: Advantages and Tax Implications Explained

The backdoor Roth IRA strategy allows taxpayers to set up a Roth IRA even if their income exceeds the IRS earnings ceiling for Roth ownership.

www.investopedia.com

 

[Phenomenally Frantastic]

Interesting twist. My employer just offered a Roth 401k. No income limit to contribute. Gets the same match. I have decided to stay with the traditional 401k because the tax deduction now matters more for me than the idea of no tax on distributions later.

I make too much for to contribute to the ira for traditional or Roth. The Roth 401k gave me pause but I can't see how I can give up the tax deduction now. Thoughts?

You can still make up to $7000 IRA after taxed money, non-tax deductible contributions into an IRA. Outside of your company 401K plan. Then “back door convert” that $7000 into a Roth. Then invest the funds. Don’t forget that part.

 

[Phenomenally Frantastic]

Question for those HROT'ers out there who are well-versed in long-term investment and the different forms of IRA's:

What type of retirement investment account would you recommend to someone who already has a decent 401k built up and is considering opening a supplementary retirement account? In this case the target would be to invest around 5-7k per year for the next 30 years in hopes of building a solid foundation for a meager but comfortable retirement. Appreciate any and all input!

See my post #37. This is the best account and method. Tax free earnings and withdrawals.

 

[ihhawk]

where is the best place to park cash and be somewhat liquid if I want to pull some out for purchases. Roughly 150k