To Roth or Not to Roth with your IRA? That is the Question!
by Paul R. Whitacre
3/8/2010
I frequently get the question of whether or not an investor should open a Roth or Traditional IRA account. This question is not always a simple one. There are several variables to consider. Before we look at the items to consider, you should understand that putting funds in either type of account is a winning approach to your retirement, and the sooner you begin to save for retirement the better.
Assuming that you qualify for a Roth IRA then you need to consider the implications of your eventual retirement. Remember that the funds you contribute to a Roth are "after-tax" dollars and your Traditional contributions may be tax deductible (deductibility is limited if you are covered by an employer plan). For example, if you can deduct your $5,000 contribution to a Traditional IRA and you are in a federal and state combined tax bracket of 31%, you would need over $7,200 of income to make the same contribution to a Roth IRA.
On the other hand, the appeal of the Roth IRA is that your earnings are tax-free in retirement. However, this advantage is only beneficial if you anticipate that your tax rate will be the same or higher in retirement than now. If your tax rate will be significantly lower in retirement and you can make deductible contributions now, than the Traditional IRA may be a better solution. If you qualify for a Roth IRA and cannot make deductible contributions to a Traditional IRA, than the Roth will have a significant advantage regardless of your future tax rate.
As you can see, there are important issues attached to the selection of a Roth or Traditional IRA. We recommend that you always speak with your tax advisor or financial planner before making a decision regarding investing your IRA.
New Contribution Limits
As of 2010, you can contribute even more to your retirement nest egg. This means that you will have more funds to invest in other investments. To maximize the earning power of your retirement account, you should consider making an investment as soon as possible.
It is very important to remember that you can invest in a wide variety of retirement vehicles within your IRA. I strongly suggest you look into diversifying your retirement vehicles to include Real Estate in your IRA. Using a self-directed IRA, Real Estate can be a source of cash flow, significant appreciation over a number of years, as well as a great way to weather recessions and secure a wealthy retirement.
- Learn how to use a virtually unknown IRS code to invest your IRA or 401K in Real Estate!
- Secure a wealthy retirement!
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