Savings...

[codeblue34]

Some questions for you:
1. How much are most residents saving per month (percentage)- please include Roth IRA, investments, savings, etc.?
2. Are most of you putting money away to a IRA and/or investments? If so, how much?
3. How much money (dollars) are you putting away for Savings?

Thanks.

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[The White Coat Investor]

Some questions for you:
1. How much are most residents saving per month (percentage)- please include Roth IRA, investments, savings, etc.?
2. Are most of you putting money away to a IRA and/or investments? If so, how much?
3. How much money (dollars) are you putting away for Savings?

Thanks.

I saved $8K/year as a resident (enough to fund a Roth IRA for myself and my spouse.) I now save 40% of my income (as you can imagine by my name, it ain't that much.)

 

[quinnie]

if you are elligible to contribute to a roth IRA put in the maximum allowed this year was 4k. it is the most tax advataged form of savings you can do. also there is a limit if you make too much you can't contribute anymore, i forget the exact amount i thought its was around 85k/annually. don't quote me on that but if you make in excess of that you no longer qualify for a roth so try to max it out every year that you do qualify for it. just my two cents. hope it helps, saving is one of the hardest things to do just need to be disciplined.

 

[scuba5794]

saving for retirement can be one of the hardest things a person has to do it takes real discipline and you have to make more enough that you can still get by. Try to max out a roth every year it will be the biggest help later on in life.
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[Twitch]

What's with the ROTH worship? Assume your household income puts you into the 25% tax bracket. Do you plan to withdraw money at a value which will put you at a greater tax bracket? If so then yes, it's good idea to pay the tax up front. You also get no required distro. However, 25% bracket covers some ground that most retirees would be comfortable to live in. As such paying taxes upfront will yield no gain.

EDIT: Some info to help you decide:Key tax numbers
Married Filing Jointly
Qualifying Widow(er)
Taxable income is over But not over The tax is Plus Of the amount over
$0 15,650 $0.00 10% $0
15,650 63,700 1,565.00 15% 15,650
63,700 128,500 8,772.50 25% 63,700
128,500 195,850 24,972.50 28% 128,500
195,850 349,700 43,830.50 33% 195,850
349,700 94,601.00 35% 349,700
You can see this table with proper formatting at the above mentioned link.

 

[Sol Rosenberg]

What's with the ROTH worship? Assume your household income puts you into the 25% tax bracket. Do you plan to withdraw money at a value which will put you at a greater tax bracket? If so then yes, it's good idea to pay the tax up front. You also get no required distro. However, 25% bracket covers some ground that most retirees would be comfortable to live in. As such paying taxes upfront will yield no gain.

EDIT: Some info to help you decide:Key tax numbers
Married Filing Jointly
Qualifying Widow(er)
Taxable income is over But not over The tax is Plus Of the amount over
$0 15,650 $0.00 10% $0
15,650 63,700 1,565.00 15% 15,650
63,700 128,500 8,772.50 25% 63,700
128,500 195,850 24,972.50 28% 128,500
195,850 349,700 43,830.50 33% 195,850
349,700 94,601.00 35% 349,700
You can see this table with proper formatting at the above mentioned link.

In a Roth, you don't pay taxes on earnings AT ALL. For "young" people the yearly contributions are chump change compared to the potential earnings in a retirement account.

In a regular IRA/401k you pay taxes on earnings AND contributions. True the taxes are deferred, but whenever I crunch some numbers, I project that, assuming our tax system stays the same (invalid assumption, I know, but it's all I really have right now) I will be in the same or higher tax bracket when I retire.

For me (assuming all of my assumptions hold true,) Roth = Good. Unmatched tax-deferred accounts = Bad. Others' situations are very likely different.

 

[Twitch]

In a Roth, you don't pay taxes on earnings AT ALL. For "young" people the yearly contributions are chump change compared to the potential earnings in a retirement account.

In a regular IRA/401k you pay taxes on earnings AND contributions. True the taxes are deferred, but whenever I crunch some numbers, I project that, assuming our tax system stays the same (invalid assumption, I know, but it's all I really have right now) I will be in the same or higher tax bracket when I retire.

For me (assuming all of my assumptions hold true,) Roth = Good. Unmatched tax-deferred accounts = Bad. Others' situations are very likely different.

I'd certainly take the matched 401k $$ money though on Roth, let's work through the #'s. Let's say you are married and assume your wife makes $40k and you $40k. That puts you in the 25% tax bracket.

Now when you retire, how much you do feel you can live on comfortably. Let's say $120k. That still puts you in the 25% tax bracket. You won't make/save any money in this situation.

Now let's take a more interesting case. Next year when you start school, assuming you won't work and you fall to the 15% tax bracket. Now a Roth makes sense. Even a conversion makes sense (IRA->Roth IRA). Why? Because you are paying 15% tax upfront but will withdraw at a potential tax bracket of 25%. Since you would have already paid your taxes you save 10%.

 

[Sol Rosenberg]

For a fair comparison, it's not a matter of how much you think you need to live, it's a matter of taking your total account balance and distributing it over the number of years that you must take distributions (or the number of years between retirement and death.) Under this set of rules, you can't just take 120k, or you might have some left over at death. Also, you neglected that in your 40k and 40k example, contribtuing the max. (14k + 14k) will bump you down into the 15% tax bracket, so the calculations aren't quite as clear-cut. Of course, this isn't an issue with a traditional vs. Roth IRA comparison.

Your contrived example doesn't apply universally (and isn't even close to my own situation, for example.) You must crunch the numbers independently for your own situation. Based upon my calculations/estimations, tax-deferred accounts are a bad deal FOR MY SITUATION. The exception is my employeer-matched 401k. The matching contributions make that, far and away, the best deal. Not all plans are created equal, however, and some employers don't offer matching 401k contributions. Advice about whether a {Roth, Traditional} x {401k, IRA} is "better" is completely useless without knowing one's individual financial situation.

An additional benefit of a Roth IRA is that you may withdraw your contributions at any time without penalty and without having to pay taxes on the distribution.

 

[Twitch]

For a fair comparison, it's not a matter of how much you think you need to live, it's a matter of taking your total account balance and distributing it over the number of years that you must take distributions (or the number of years between retirement and death.) Under this set of rules, you can't just take 120k, or you might have some left over at death. Also, you neglected that in your 40k and 40k example, contribtuing the max. (14k + 14k) will bump you down into the 15% tax bracket, so the calculations aren't quite as clear-cut. Of course, this isn't an issue with a traditional vs. Roth IRA comparison.

Your contrived example doesn't apply universally (and isn't even close to my own situation, for example.) You must crunch the numbers independently for your own situation. Based upon my calculations/estimations, tax-deferred accounts are a bad deal FOR MY SITUATION. The exception is my employeer-matched 401k. The matching contributions make that, far and away, the best deal. Not all plans are created equal, however, and some employers don't offer matching 401k contributions. Advice about whether a {Roth, Traditional} x {401k, IRA} is "better" is completely useless without knowing one's individual financial situation.

An additional benefit of a Roth IRA is that you may withdraw your contributions at any time without penalty and without having to pay taxes on the distribution.

The example is just that and (as examples go) not meant to apply universally to everyone's situation. Hence the tax table reference earlier to see where one would fit.