Interesting CPA comment on IRA/Roth IRA

[spidey07]

From a retirement perspective he says "why in the world would you do retirement investing with post-tax dollars? Roth IRAs are fine if you intend to take the money out before you retire, but for retirement its not a good idea.

"Your dollar today is worth more than it is tomorrow due to inflation"

Kinda makes sense.

 

[gopunk]

because the gain is not taxed?

your doller today is only worth more if you can't outpace inflation with some type of investment.

 

[spidey07]

Originally posted by: gopunk
because the gain is not taxed?

your doller today is only worth more if you can't outpace inflation with some type of investment.

there has to be a calculator out there somewhere to compare the two. Another point he made is "always defer taxes"

 

[mwtgg]

I'd rather pay taxes at the current rate, who knows what they'll be when I retire. Then again, they could be very low, nonexistant, or exorbitantly high.

 

[DaveSimmons]

Sounds like a simplistic catchphrase along the lines of "don't work for your money, make your money work for you!" or "you're either with us or against us."

The articles I've seen that compare outcomes over decades showed the Roth pulling ahead over time with tax-free growth vs. traditional IRA's tax-deferred growth, though it depends on how poor you plan to be at retirement (low income favors trad IRA).

It also ignores that many people can't get a writeoff from a trad IRA because of having a 401k with their employer. So it's Roth or nothing.

In your shoes I'd be very wary of taking any retirement planning advice from that CPA.

 

[CPA]

His point is valid regarding the value of a dollar and most financial folks would at least say invest in a 401K up to the company match before deciding on a Roth or not. There are calculators out there, but I'm too tired right now to google them.

 

[sygyzy]

401k up to max match, max out Roth, back to maxing 401k (unmatched), liquid.

 

[Blieb]

It depends how long you have to invest ...

There are calculators at http://www.dinkytown.com

I have a Roth. It is the BEST choice for me.

 

[spidey07]

Originally posted by: sygyzy
401k up to max match, max out Roth, back to maxing 401k (unmatched), liquid.

thing is 401k is already maxed and matched.

I'm trying to figure out yet more ways to decrease taxible income.

thing is I have to rollover a previous 401k.

going further I would like to supplement the 401k with a IRA/roth IRA.

 

[Zenmervolt]

If you want to know pros and cons of investment/retirement strategies, talk to a CFA (Chartered Financial Analyst), not a CPA. Accountants don't know jack sh!t about investments and that's fine, because Financial Analysts don't generally know jack sh!t about making a corporate balance sheet look good.

Accounting is exactly what the name implies: How to _account_ for the money you already have. Accounting does not encompas investing or how to make more money in the future. The focus is strictly on how to make your current holdings appear in a manner that is most advantageous to you at the present time.

Finance is where you need to be looking if you want advice on retirement, investments, or anything having to do with how you should distribute your money in the future.

ZV

 

[HardcoreRobot]

25% on thousands now is less than 25%+ on hundreds of thousands later

 

[FoBoT]

Originally posted by: sygyzy
401k up to max match, max out Roth, back to maxing 401k (unmatched), liquid.

that is what i was taught

 

[Doggiedog]

Originally posted by: Zenmervolt
If you want to know pros and cons of investment/retirement strategies, talk to a CFA (Chartered Financial Analyst), not a CPA. Accountants don't know jack sh!t about investments and that's fine, because Financial Analysts don't generally know jack sh!t about making a corporate balance sheet look good.

Accounting is exactly what the name implies: How to _account_ for the money you already have. Accounting does not encompas investing or how to make more money in the future. The focus is strictly on how to make your current holdings appear in a manner that is most advantageous to you at the present time.

Finance is where you need to be looking if you want advice on retirement, investments, or anything having to do with how you should distribute your money in the future.

ZV

What would a CFA know about this? A bunch of the guys that work around me are CFAs and they go to CPAs to help them with their taxes. Having a CFA just means you understand accounting, debt/equity analysis and ethics thoroughly.

 

[Jzero]

With Roth do you pay tax on the interest when you withdraw at retirement?

 

[edro]

Originally posted by: Jzero
With Roth do you pay tax on the interest when you withdraw at retirement?

I don't think so... It's tax free interest. There may be some fees or something, but no tax that I know of.

 

[dderidex]

Originally posted by: Jzero
With Roth do you pay tax on the interest when you withdraw at retirement?

No, Roth IRAs are post-tax. You pay from them strictly out of your 'take home pay', so the money has already been taxed. When you withdraw from them, you pay no additional tax.

Which is why I'm confused why that would ever be a bad idea. Does anyone REALLY think the tax rate 40 years from now isn't going to be higher than the tax rate today?

Better to let them tax it at the current rate and not have to pay again!

 

[wyvrn]

As dderidex has pointed out, the tax rate now and later has a lot to do with it. If you think taxes will go up (a very plausible notion given the impending social security and medicare funding problems), then investing post-tax dollars today could be a great idea. If you want to be able to quantify your return on investment using known tax rates, post-tax investment is a great tool.

 

[Jzero]

Originally posted by: dderidex

Originally posted by: Jzero
With Roth do you pay tax on the interest when you withdraw at retirement?

No, Roth IRAs are post-tax. You pay from them strictly out of your 'take home pay', so the money has already been taxed. When you withdraw from them, you pay no additional tax.

That's what I thought, but the original post made me second guess.

So given a choice between:
Putting in contributions in "present-day" dollars being assessed present-day tax rates and at retirement withdrawing your "present-day" dollars PLUS your tax-free interest in "future" dollars.

Or

Putting in contributions in "present-day" dollars and then at retirement withdrawing those "present-day" dollars plus your interest in "future" dollars and then having the whole thing taxed at future rates.

It seems like the first option will net you the larger gains and less tax costs if for no other reason than it saves your from paying ANY tax on all that compound interest that's been accruing for 40 years.

 

[MattCo]

If your company doesn't match, and you live in a income tax free state but planned to move to a income tax state after you retire, wouldn't the Roth IRA make more sense than a 401K?

-MC

 

[mugs]

Originally posted by: HardcoreRobot
25% on thousands now is less than 25%+ on hundreds of thousands later

If the tax rate is the same, it shouldn't make a difference whether it's taxed when you put it in or when you take it out.

If I had 1000 and it grew to 100,000 and paid 25% tax on that, I'd have 75,000. If I had 1000, paid 25% tax on it, and it grew at the same rate, I'd have 75,000.

 

[Doggiedog]

The assumption on tax rates is that by the time you are old enough to retire, your taxable income bracket will be much lower than when you put the money in, hence saving you money.

 

[squeeg22]

Originally posted by: sygyzy
401k up to max match, max out Roth, back to maxing 401k (unmatched), liquid.

What if your company doesn't match 401K at all (ours gives company stock instead of matching)? Should I lower the 401K and put it into Roth instead?

 

[rufruf44]

My biggest problem is if in the future govt decides to tax Roth IRA as well. There's already grumbling about it and with the current deficit all over the place, it'll be hard for bureaucracy to ignore another source of income. And before someone said that's not gonna happen, consider that Social Security benefits isn't taxable from its conception until congress decides they need more $$$ in the early 80s.

 

[mugs]

Originally posted by: rufruf44
My biggest problem is if in the future govt decides to tax Roth IRA as well. There's already grumbling about it and with the current deficit all over the place, it'll be hard for bureaucracy to ignore another source of income. And before someone said that's not gonna happen, consider that Social Security benefits isn't taxable from its conception until congress decides they need more $$$ in the early 80s.

Article to support that?

 

[dirtboy]

If your income is going to be less than it is at its highest point, investing in a ROTH doesn't make much sense. Might as well take the tax deduction while you are in a higher bracket now and pay taxes later when you will be in a lower bracket.

I know there are people that claim taxes could go way up, but look at the historical numbers. People generally retire in a lower bracket.

Now if you are going to have a large income at retirement, then a ROTH is a great idea or if you are already in a low tax bracket, might as well take advantage of it.