Roth ira worth it?

[icekitsune]

Hi all,
Just wanted some personal n all experience with ira as further investment of finances. A little background, right now I have a checking account that makes absolutely no interest, maxed my 401k, I have a hsa account though i don't think I maxed it(i'm a little uncertain about hsa).I'm looking at putting some money at amex (1.45) saving account or ally or synchrony( 1.55 interest rate) for more interest. No student loans. Currently , I'm renting, not sure about settling yet but my fees are $600 per month inclusive. I was thinking of possibly opening up a Ira account for more future planning though I'm not sure if it's worth it or the investment above (401k )is enough and i should just go on a vacation instead. Thoughts?

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[WVUPharm2007]

Yes. Put $5500 in it a year.

 

[BenJammin]

I dumped my old 401k into my traditional IRA so I can't do the roth anymore.

 

[sakigt]

Clark Howard claims having two piles of money, some that are taxable and some that aren't provides flexibility in retirement to manage your tax brackets. If you contribute outside of an employer sponsored plan you are able to withdraw any contributions so you can use it like an emergency fund.

I save about $2000/year but hoping to up that to the max in the next 2-3 years

 

[mentos]

General rule of thumb:
1 - contribute 401k up to match (free money)
2 - max out Roth IRA (pay taxes now while your salary is lower than when you're 65)
3 - max out rest of 401k
4 - contribute to taxable accounts

If you have HSA, I would max that out before anything else too.

 

[Dred Pirate]

I max out my roth for my wife and I - since you can always pull the contribution out without penalty - it is our sort of emergency fund - 11k a year x 3 years so far - makes for a comfortable emergency fund.

Agree with splitting your money between taxable and tax free (traditional 403b vs roth) - I max both out - personally

so yes - it is worth it

 

[BMBiology]

I stopped contributing to my ROTH IRA a couple of years ago. The main benefit of ROTH IRA is any gains is tax free when you withdraw it after 59.5 years old.

BUT, as you can tell from the picture, your long term capital gain tax (hold it for at least 1 year) is also zero just as long as you make less than $75,900 for married couples. So, what is the point? Will you be making $76 k when you are 60 years old?


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[Dred Pirate]

View attachment 232254

I stopped contributing to my ROTH IRA a couple of years ago. The main benefit of ROTH IRA is any gains is tax free when you withdraw it after 59.5 years old.

BUT, as you can tell from the picture, your long term capital gain tax is also zero just as long as you make less than $75,900 for married couples. So, what is the point? Will you be making $76 k when you are 60 years old?


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I guess the point is that I will be (and I hope everyone here is) making more than 76k when we are over 60, That is only 37% of my current income

 

[BMBiology]

I guess the point is that I will be (and I hope everyone here is) making more than 76k when we are over 60, That is only 37% of my current income

Even if you make $479 k a year at age 60, your capital gain tax is just 15%.

Is it worth holding your money in a ROTH IRA account for 30+ years just for the potential tax savings?


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[Dred Pirate]

Even if you make $479 k a year at age 60, your capital gain tax is just 15%.

Is it worth holding your money in a ROTH IRA account for 30+ years just for the potential tax savings?


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my personal thoughts are that I can put 11k into a roth every year, or put it into a taxable account. With each I can always pull out the initial investment tax free - the roth gives me the advantage of tax free growth. I am at a place financially I do not see a need to ever tap into the income in that pile of money before 60. I have more than enough of the initial contribution that if an emergency happens, I am good.

 

[BMBiology]

my personal thoughts are that I can put 11k into a roth every year, or put it into a taxable account. With each I can always pull out the initial investment tax free - the roth gives me the advantage of tax free growth. I am at a place financially I do not see a need to ever tap into the income in that pile of money before 60. I have more than enough of the initial contribution that if an emergency happens, I am good.

Someone confirm this for me....I think your contribution needs to be in a ROTH IRA for at least 5 years before you can withdraw the principle without paying any penalty.

One smaller benefit of ROTH IRA is dividend is not taxed.


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[Dred Pirate]

Someone confirm this for me....I think your contribution needs to be in a ROTH IRA for at least 5 years before you can withdraw the principle without paying any penalty.

One smaller benefit of ROTH IRA is dividend is not taxed.


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no - the five year relates to how long the initial principle has to be in in order to withdrawn income- meaning, if you contribute after the age of 54.5 - you may have to wait longer than 59.5 to withdraw.

https://www.rothira.com/blog/the-five-year-rule-with-roth-ira-withdrawals

 

[NITRAS]

Even if you make $479 k a year at age 60, your capital gain tax is just 15%.

Is it worth holding your money in a ROTH IRA account for 30+ years just for the potential tax savings?


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Yes.

Long term capital gain are after tax accounts. ROTH accounts are after tax accounts.

Using ROTH accounts does a couple things. 1. If lowers your future tax burden. I don't know what taxes are going to be like in 30 years, but I would be surprised if I end up paying a lower effective tax than now. I plan on having a large nest egg, and am investing aggressively.

2. Effectively allows you to invest more in retirement accounts. $5500 in an after tax account takes more money than $5500 in a pre-tax account. Given a 30% effective tax rate, a Roth is effectively investing $7852. This becomes a bigger deal when you max out all of your tax sheltered investing options. Also, no RMD either.

Tax free growth>>Tax deferred growth>> capital gains rate tax.

The longer your investing horizon, the more ROTH makes sense. If you are near retirement, then a roth may not be the best option.

PS, you should have an emergency fund outside of your retirement investing. Just my opinion.

 

[BMBiology]

Ultimately it depends on how much money you think you will be making during your retirement years.

I do not think I will be making $76 k a year (today’s money) during my retirement years when I am just withdrawing from my 401 k and social security. Therefore, I would be paying zero capital tax anyways even if I had invested just a year prior.

If for some reason I would making a grip of money during my retirement then I am just going to retire early. Why keep on working your butt off just so you can collect $150 k a year when you are 80 years old? What are you going to do with that much money at that age?


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[pezdispenser]

It's just $5,500/yr so it won't make that much difference to your spending budget either way. With no student loans and cheap rent, it sounds like you can max out everything--401k, HSA and Roth--and still have money left over to go on a nice vacation.

I've been doing it for 11 years and put in $58k. What I love about the Roth is that you can setup a brokerage account in it and trade stocks completely tax free and not have to worry about short term or long term capital gains taxes or wash sales. So I bought some high growth stocks like AMZN, GOOG, NFLX and have doubled the balance to $120k. I'm not really concerned about not being able to withdraw the earnings until retirement, or missing out on the 0% long term capital gains tax rate, since I have even more money in taxable accounts for that.

 

[pezdispenser]

Someone confirm this for me....I think your contribution needs to be in a ROTH IRA for at least 5 years before you can withdraw the principle without paying any penalty.

One smaller benefit of ROTH IRA is dividend is not taxed.


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No, from what I read in IRS Publication 590-B, direct Roth contributions and even backdoor Roth contributions can be withdrawn at any time and are not subject to the 10% early withdrawal penalty or taxes. The 5 year rule applies to the earnings withdrawn before you've had a Roth for 5 years, but your contributions will still be withdrawn first before the earnings.

A different 5 year rule applies to conversions to prevent people from converting a traditional IRA to Roth, paying the taxes, then withdrawing it to try to avoid the 10% early withdrawal penalty. However, this doesn't apply to the backdoor Roth because it is a non-taxable conversion.

 

[sakigt]

View attachment 232254

I stopped contributing to my ROTH IRA a couple of years ago. The main benefit of ROTH IRA is any gains is tax free when you withdraw it after 59.5 years old.

BUT, as you can tell from the picture, your long term capital gain tax (hold it for at least 1 year) is also zero just as long as you make less than $75,900 for married couples. So, what is the point? Will you be making $76 k when you are 60 years old?


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Will that chart be the same when well have to payback Trumps tax plan?

 

[Dred Pirate]

Will that chart be the same when well have to payback Trumps tax plan?

it really won't matter what trump says because by the my people on here (myself included) we will have gone through 3 or 4 presidents

 

[BMBiology]

Will that chart be the same when well have to payback Trumps tax plan?

If you could predict what is going to happen 30 years from now, you wouldn’t be working as a pharmacist. Would you?


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[sakigt]

So the current plan of deficit spending with the so far unfounded expectation it will be paid for with economic growth wont have any lasting effects? Well that's news to me.

Im just saying, deciding not to invest in a tax free account based on 2018 tables is a bit of a risk as well.

 

[gwarm01]

If you could predict what is going to happen 30 years from now, you wouldn’t be working as a pharmacist. Would you?


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but my paaaaaassssiiioooonnn

 

[wagrxm2000]

So the current plan of deficit spending with the so far unfounded expectation it will be paid for with economic growth wont have any lasting effects? Well that's news to me.

Im just saying, deciding not to invest in a tax free account based on 2018 tables is a bit of a risk as well.

You mean the plan we've always had?

 

[KennethCool]

General rule of thumb I've always heard was to do Roth IRA until you're 40, then regular IRA until you retire.

 

[Momus]

General rule of thumb:
1 - contribute 401k up to match (free money)
2 - max out Roth IRA (pay taxes now while your salary is lower than when you're 65)
3 - max out rest of 401k
4 - contribute to taxable accounts

If you have HSA, I would max that out before anything else too.

I wouldn't do this. I'd max 401k, then spill over to Roth IRA. In general, Roth IRA is for extra saving account + tax diversification + avoiding taxable gains.

There is plenty of discussion why funding Roth IRA is not necessary IF you CAN'T save more beyond tax deferred retirement accounts. You just simply max out your 401k/403b first since the withdrawal money during retirement is taxed way less later (vs. giving Trump more money now). If you save more than what 401k limit is allowed, then Backdoor Roth IRA is a great additional vehicle to put money to. Then, the question becomes Roth IRA vs. taxable savings. Of course, Roth IRA always wins out because gains/dividends aren't taxable during retirement. There is no reason NOT to open ROTH IRA if you invest in taxable accounts.

The new order becomes: 401k max > back door ROTH IRA > HSA > taxable accounts. Defer defer defer gains/dividend is the name of the game to withdraw at lower tax bracket.

 

[NITRAS]

I would argue that you have limited options in most people's 401k's and 403b's, and you can probably get a better rate of return in an IRA.

 

[BMBiology]

The new order becomes: 401k max > back door ROTH IRA > HSA > taxable accounts. Defer defer defer gains/dividend is the name of the game to withdraw at lower tax bracket.

This is my priority:

401 k (to company match) > HSA > 401 k (remaining amount) > taxable account = ROTH IRA.

I like HSA. You pay no federal income tax, medicare tax, social security tax (mute point for some rph), and no state income tax (in most states). Some companies would even give you a reasonable match. At age 65, you can withdraw from your HSA for non medical things without paying any penalty. You just need to pay income tax on it (similar to your 401 k).

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[gwarm01]

This is my priority:

401 k (to company match) > HSA > 401 k (remaining amount) > taxable account = ROTH IRA.

I like HSA. You pay no federal income tax, medicare tax, social security tax (mute point for some rph), and no state income tax (in most states). Some companies would even give you a reasonable match. At age 65, you can withdraw from your HSA for non medical things without paying any penalty. You just need to pay income tax on it (similar to your 401 k).

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I use all of these. I wish I would have started sooner, but it took me a few years to get hip to it.

 

[ldiot]

Generally speaking it's worth it, but only if you have no debt AND have maxed your 401k

 

[ldiot]

This is my priority:

401 k (to company match) > HSA > 401 k (remaining amount) > taxable account = ROTH IRA.

I like HSA. You pay no federal income tax, medicare tax, social security tax (mute point for some rph), and no state income tax (in most states). Some companies would even give you a reasonable match. At age 65, you can withdraw from your HSA for non medical things without paying any penalty. You just need to pay income tax on it (similar to your 401 k).

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Just curious, can you use HSA for dental/vision too?

 

[BMBiology]

Just curious, can you use HSA for dental/vision too?

Yeah you can but you don’t have to get reimbursed right away. You can electronically store your receipt and get reimbursed 10 or 20 years later. By not touching your HSA money, it continues to grow and grow.


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[WVUPharm2007]

Yeah you can but you don’t have to get reimbursed right away. You can electronically store your receipt and get reimbursed 10 or 20 years later. By not touching your HSA money, it continues to grow and grow.


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... And don't forget to save it to Google cloud or something. Hard drives fail.

 

[VA Hopeful Dr]

Generally speaking it's worth it, but only if you have no debt AND have maxed your 401k

Depends on the market. All of my retirement accounts the last few years earned over 8%. My debt is at 4%. So it makes more sense to prioritize the former.

 

[gwarm01]

Depends on the market. All of my retirement accounts the last few years earned over 8%. My debt is at 4%. So it makes more sense to prioritize the former.

2017 saw >20% growth in my accounts. I think it's fair to say you should be paying off debt and saving for the future.