ROTH IRA VS. TRADITIONAL IRA Part 2

[pyriel]

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My wife and I are planning onmoving our TSP to an IRA account when I retire. I just can't decide between ROTH and Traditional IRA. My wife and I are maxing out on TSP and ROTH IRA. On 2006, we also plan on maxing out our TSP to 15K each. We plan on leaving the money to my two kids since income from our retirement and businessshould be more than enoughfor us to live comfortably. We don't think we are going to be touching ourIRA account when we retire and we both live comfortably now. We both know that we want to move our TSP to an IRA account so that our kids can stretch themandatory withdrawal (according to their life expectancy) and have the account grow tax deferred. Can somebody please give me the pros and cons between the two? My wife and I are 37 & 34 and my kids are 3 & 1 years old.

I just want to say that I really enjoy coming here because I am getting alot of good advice from everyone. Thanks...

 

[Mike]

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It depends.

If the income generated from this account is likely to exceed the present income level that you are at, it would be wise to go the Roth route and take the tax hit now, since the rate paid would be less than if you deferred it (since greater income in the future would yield a higher tax bracket). However, if the income will be equal to or less than the present, then a traditional IRA would work just fine.

 

[Rod]

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As of now, you can only roll over your TSP into a Traditional IRA and not a ROTH.

BUT, you should be able to roll it over into the Traditional then roll the Traditional over into a ROTH.

Here's a fact sheet:

http://tsp.gov/uniserv/forms/oc91-16.pdf

God Bless:^

 

[Guest]

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Rod is right, a friend of mine is currently rolling over 3 retirement funds that she has collected through the years into a Traditional IRA with Scottrade. Then she is going to roll that over into a Roth. There is no time frame to do this. Once the money is in the Traditional, you can roll it into a Roth at anytime.

Good Luck

M_M

 

[Rod]

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mlk_man wrote:

Rod is right, a friend of mine is currently rolling over 3 retirement funds that she has collected through the years into a Traditional IRA with Scottrade. Then she is going to roll that over into a Roth. There is no time frame to do this. Once the money is in the Traditional, you can roll it into a Roth at anytime.

Good Luck

M_M

Hey Mike, should we think we can make more $$$ off of a ROTH mutual fund rather than simplykeeping it in our TSP?

I've often wondered about this. What do you think?

 

[Guest]

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Rod wrote:

Hey Mike, should we think we can make more $$$ off of a ROTH mutual fund rather than simplykeeping it in our TSP?

I've often wondered about this. What do you think?

I personally can make, am making, four times as much in my Roth accounts than TSP..........

 

[Guest]

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mlk_man wrote:

Rod wrote:

Hey Mike, should we think we can make more $$$ off of a ROTH mutual fund rather than simplykeeping it in our TSP?

I've often wondered about this. What do you think?

I personally can make, am making, four times as much in my Roth accounts than TSP..........

Oops, sorry, it averages out to about 5 times actually.............

 

[Rod]

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mlk_man wrote:

mlk_man wrote:

Rod wrote:

Hey Mike, should we think we can make more $$$ off of a ROTH mutual fund rather than simplykeeping it in our TSP?

I've often wondered about this. What do you think?

I personally can make, am making, four times as much in my Roth accounts than TSP..........

Oops, sorry, it averages out to about 5 times actually.............

That's really great. If you don't mind me asking, what mutual fund are you with?

 

[Guest]

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Rod wrote:

That's really great. If you don't mind me asking, what mutual fund are you with?

Profunds ultra and ultrashort funds. There are different ones, take your pic.

Just pic wisely................:^

http://biz.yahoo.com/p/fam/profunds.html

 

[Rod]

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mlk_man wrote:

Rod wrote:

That's really great. If you don't mind me asking, what mutual fund are you with?

Profunds ultra and ultrashort funds. There are different ones, take your pic.

Just pic wisely................:^

http://biz.yahoo.com/p/fam/profunds.html

Thanx!:^

 

[Guest]

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Guys,

Remember about converting. The reason you can roll over the TSP to only a traditional IRA at first is because they are similiar vehicles (the money went in pre-tax). You all already know this. Two things to consider for the Roth IRA conversion after that. I have converted Traditional IRA to Roth so this is from experience.

1-There is a tax consequence for rolling it over. All the money that went in pre-tax (I don't believe the gains, just the principal) is taxed at your current tax bracket. You may want to converta littleyear by yearto spread out the tax burdern.

2-You must be married filing joint on your tax return to have a Roth and you can't convert anything into a Roth unless your AGI is below $100K, I believe.

please check me on this but I think this is mostly correct. Let me know.

One question:

Can you convert your TSP into a traditional Roth at anytime? Am I getting that from your posts? If so, interesting.

Mike,

Is the new system working pretty well for the Profunds Ultra small cap/Ultra short small cap right now? just curious.

Joel

 

[Guest]

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Mike, Rod and others,

Correct that you can rolla traditionalinto a Roth anytime, providing your combined AGI (annual gross income)is under 100K! Also, you must be married filing joint on your tax return and you incure a huge tax bill (unless you have a small amount to roll over)when you roll from traditional to Roth. It may be a better idea to do it a little at a time, so you can spread out the tax burden (taxed at your current tax bracket) These things must be considered before you roll over a traditional IRA to a Roth. I've done this with a small amount of $ (less than 5K) already. I hope this helps.

Mike,

I guess you started your Scottrade acct? I thought that wasn't until next year? How is the new system with it? I also would guess that while in the S fund, you have been in Profunds Ultra Small cap and while in G, you go to Profunds Ultra Short Small cap? Just curious.

Joel

 

[Guest]

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Sorry about the second post! When I hit send on the first postan error occured. When I went to see if it was there, it wasn't until I posted the second post. Sorry, Sorryto tobe be redundent redundent. Happy Thanksgiving.

Joel

 

[Rod]

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jgpalmerdds wrote:

Can you convert your TSP into a traditional Roth at anytime? Am I getting that from your posts? If so, interesting.

Please don't confuse the Traditonal & ROTH IRA. It sounds as if you combined the 2 into 1.

You cannot convert into a ROTH, but you can convert into the Traditional.

I believe you can only convert when you leave Federal Service and close your account. But, check out the fact sheet on the TSP site to be for sure.

God Bless:^

 

[pyriel]

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All,

Thanks for all of your advice. I just want to reiterate what all of you are saying. If I misinterpreted them, please correct me.

1. Must roll over TSPto traditional then ROTH.

2. ROTH is a better vehicle due to non-tax distribution that my kids will get.

3. Spread out the roll over from traditional to ROTH so that not togo above AGI ($100K). Is it $100K or is it $150K for married filing jointly.This is a good idea. I never thought about this.

4. Find a good IRA custodian that provide high yield but yet is able to weather major ups and down in the market.

I was just reading a book that in ROTH IRA, there is no mandatory withdrawal period (traditional = you must start withdrawing at 70.5 yrs old) and you may contribute until the day before you die as long as you have earning. Any thought on this?

 

[pyriel]

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mlk_man wrote:

Rod wrote:

That's really great. If you don't mind me asking, what mutual fund are you with?

Profunds ultra and ultrashort funds. There are different ones, take your pic.

Just pic wisely................:^

http://biz.yahoo.com/p/fam/profunds.html

Milk_man,

Ok, I followed the website above and I got scared. I am so wet behind the ear that I wouldn't know which one is which. No wonder you said "Just pic wisely" I guess, I am looking for a fund that I can just contribute monthly and not worry too much about it(who am I kidding?). Ups and down in the market doesn't really bother me especially, if the fund has survived many crashes in the past...

ALL,

I plan on increasing my ROTH IRA. Any suggestion?What I am looking for is a fund that has been around (10-20 years),must be aggressive (I think I have time in my side), and not too much expenses. I don't mind paying loads as long as they balance out later and fund is a good performer. I am also looking for long term...

Additionally, how the heck do I give mana to people who are very knowledable and very helpful... Thanks....

 

[S280]

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I am with you. I am really looking forward to this response. I looked at that link and thought, How the hell do you know what to pick.

Steve

 

[Guest]

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Guys and Girls:

First of all, I mispoke. Let me explain:

There are 2 different types of IRA's: Traditional and Roth. The TSP can be rolled over to a Traditional IRA after you leave Gov't service (per Rod). As he said, check the TSP website as to when you can roll the TSP to the Traditional.

Now, let's say you have rolled the TSP to the Traditional IRA: you can now convert this Trad. IRA to a Roth IRA if the following is true:

You file your taxes married filing joint and your (you and spouse) adjusted Gross Income (AGI)is under 100K. The 150K cap for AGI is for contributing right to a Roth IRA, not the transfer.

Also, the reason for convertinga percentageper year (from Trad to Roth) is to not have to pay all the taxes on the conversion in one year, it has nothing to do with adjusting the AGI. I hope this helps.

Joel

 

[Guest]

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pyriel wrote:

Ok, I followed the website above and I got scared. I am so wet behind the ear that I wouldn't know which one is which. No wonder you said "Just pic wisely" I guess, I am looking for a fund that I can just contribute monthly and not worry too much about it(who am I kidding?). Ups and down in the market doesn't really bother me especially, if the fund has survived many crashes in the past...

ALL,

I plan on increasing my ROTH IRA. Any suggestion?What I am looking for is a fund that has been around (10-20 years),must be aggressive (I think I have time in my side), and not too much expenses. I don't mind paying loads as long as they balance out later and fund is a good performer. I am also looking for long term...

Additionally, how the heck do I give mana to people who are very knowledable and very helpful... Thanks....

pyriel, don't know what to tell ya, i'm not a buy and holder, sort of pointless to me. If you want a good mutual fund to invest in and not worry about, you might want to seek a "professional mutual fund" guy, as far as I know, the real estate funds are probablyl the best at this point. But I really don't know.

 

[Guest]

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pyriel wrote:

mlk_man wrote:

Rod wrote:

That's really great. If you don't mind me asking, what mutual fund are you with?

Profunds ultra and ultrashort funds. There are different ones, take your pic.

Just pic wisely................:^

http://biz.yahoo.com/p/fam/profunds.html

Milk_man,

Ok, I followed the website above and I got scared. I am so wet behind the ear that I wouldn't know which one is which. No wonder you said "Just pic wisely" I guess, I am looking for a fund that I can just contribute monthly and not worry too much about it(who am I kidding?). Ups and down in the market doesn't really bother me especially, if the fund has survived many crashes in the past...

ALL,

I plan on increasing my ROTH IRA. Any suggestion?What I am looking for is a fund that has been around (10-20 years),must be aggressive (I think I have time in my side), and not too much expenses. I don't mind paying loads as long as they balance out later and fund is a good performer. I am also looking for long term...

Additionally, how the heck do I give mana to people who are very knowledable and very helpful... Thanks....

Pyriel,

What are your goals? How old are you? Are you a buy/hold type of guy/timer, what is you strategy?

The profunds are good for one thing and one thing only: timing! Mike seems to have a good "system" which I don't know any of the particulars and he can explain, but it is probably dealing with market conditions, etc, a form of "timing". Go to www.profunds.com , go to prices/performance and click on performance data. You will see that all the Ultra Profunds have neg returns since their inception. That's not good for a buy/holder. Now again, I don't know Mike's particulars, but he is set up to get in and out of these Ultra pro funds with his timing "system". If the system is halfway right most of the time (which it seems to be) he makes a killing. I would not use these funds for long term buy/holding. That's my opinion. You will lose money this way

If you want a good buy/hold strategy I have a real eye opener of an article. go to

http://www.fundadvice.com/FEhtml/BHStrategies/0108/0108a.htmland check this out. I have no vested interest in this site. They stess for buy/holders the asset classes (small cap, large cap, international, growth vs. value, etc) to be involved with versus the funds themselves and the timing. This is just a suggestion if you don't want to follow a "system". I am in no way inferring it is better.

My suggestion:

look into Mike's system for your personal IRA's, he uses Scottrade and the Profunds. Paper trade it (practice on paper) for a little and then go for it. He does post his buy/sell signals under his accountor:

Check out the buy/hold article above and diversify into those 8-9 different asset classes or:

take the advice of someone else on the board.

Only trying to help, I don't have all the answers.

Joel