Retirement Planning

[Rolo]

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mlk_man wrote:

Roth- put $4000 in this year. Goes up to $5000 next year.

Not until 2008....unless yer old.


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I'm still at a loss as to why you would want to convert from Traditional to a Roth; why pay all those taxes up-front rather than over time?

Note that this is different than deciding which type to contribute,so "tax-free growth" axioms not necessarily apply....or do they? Tax-free growth henceforth, but at the expense of immediately paying taxes on all prior growth.


Also..if you are leaving your retirement balance to an heir...rather than enabling them to continually defer those taxes, you paid them up-front by converting to a Roth.

 

[mlk_man]

imported post

Rolo wrote:

I'm still at a loss as to why you would want to convert from Traditional to a Roth; why pay all those taxes up-front rather than over time?

Note that this is different than deciding which type to contribute,so "tax-free growth" axioms not necessarily apply....or do they? Tax-free growth henceforth, but at the expense of immediately paying taxes on all prior growth.


Also..if you are leaving your retirement balance to an heir...rather than enabling them to continually defer those taxes, you paid them up-front by converting to a Roth.

I think it's probably all about the age that you decide to either or.

But just a couple points, once you start taking distributions from a Traditional IRA, it is considered "taxable income". This will most likely effect your Social Security and how it is taxed. Distributions from a Roth are not considered "taxable income".

You also have mandatory distribution rules when you turn 70 with a traditional buy not with a Roth.

As far as heirs, with the Roth your beneficiaries never pay taxes on it. Why bother them with having to pay taxes on a traditional? Of course both will be subject to estate taxes.

I've already done one conversion for a friend. Keep in mind she only had about $10000 in the account. Everything changes if you have a few hundred grand in it and make a decent return on the money that you would have paid in taxes "upfront". So I think it's an age and a money issue as to which one is best. :^

If one is just starting out and doesn't have a lot of capital built up yet, I'd say a Roth is right for you. If you have a lot of capital and are already at the top of the tax bracket, I'd say stick with the traditional.

M_M

 

[mlk_man]

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Rolo wrote:

mlk_man wrote:

Roth- put $4000 in this year. Goes up to $5000 next year.

Not until 2008....unless yer old.


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Oops, you are correct sir!

 

[Rolo]

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hehe...I know...I was thinking, putting together my financial plan for '06 last week, that the limits went up to $5K. I was quite disappointed when I double-checked.

Wonder why we thought that? (Impatient, hehe)

I am trying to decide if I want to take some of that $15K TSP chunk and divert it to my Scottrade account for active trading and better funds. hrmmmmmm.

Check me here: for that to be a better move, I would have to outperform my TSP allocation returns PLUS income tax savings.

i.e. ifmy TSP yields 12% and Ipay 25%income tax rate, then I would have to return more than 37% in my Scottrade endeavours to get ahead. Correct? (That just doesn't seem quite right, but I cannot figure out why.)

 

[Spaf]

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Uh Oh! Here goes the PT Cruiser! o

 

[Rolo]

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Spaf wrote:

Uh Oh! Here goes the PT Cruiser! o

hahahaa...yeah, now I have TWO of them to modify...so I need to get my Scottrade goin' again!

heh, I'll use horsepower and % interchangably..so if I add 20 HP to onePT, that counts as a 20% gain on my Scottrade account.

 

[JOVARN]

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WOW !!! I feel like I should pay someone for all that information

 

[Rolo]

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JOVARN wrote:

WOW !!! I feel like I should pay someone for all that information

ROFL!