ROTH IRA Limits STILL at $5K??? Seriously??

[Juked07]

Really? I mean...really? I maxed out my IRA contribution last year and I am not even close to rich - unless you count someone making $50,000 a year rich. Come on - we already have a huge problem with people not saving for retirement and maxing out the existing contribution limits is easily attainable

Totally agree. The attitude that you have to make tons of money to put aside 5k is a reflection of the public's spending habits and (in)ability to save.

 

[TuxDave]

It's probably a good thing it's capped at $5K since I'd probably max it to the point where I'm living on poverty.

 

[tranceport]

I always bet on black for my investment plan.

 

[rcpratt]

Eh, I'm still under my 401k limit so I'm not too concerned right now.

 

[JS80]

At least you pathetic fools can contribute to an IRA. Since I can't, I will make sure to vote for candidates that will come after your Roth gains in the future.

 

[lothar]

At least you pathetic fools can contribute to an IRA. Since I can't, I will make sure to vote for candidates that will come after your Roth gains in the future.

Are you unemployed?
That means you'll start voting Democrat now???

 

[bhanson]

Although I'm fine with increasing the limit, it wouldn't do anything but help the people already saving for retirement even more. Most people don't even contribute their 5k.

New cars, huge houses, and eating out is more important.

 

[Hacp]

Although I'm fine with increasing the limit, it wouldn't do anything but help the people already saving for retirement even more. Most people don't even contribute their 5k.

New cars, huge houses, and eating out is more important.

And that is bad how? America has lost sight of personal responsibility. If you choose to eat at 5 star restaurants and go to disney world every 3 day weekend, you deserve to live poor when you're older.

 

[bhanson]

And that is bad how? America has lost sight of personal responsibility. If you choose to eat at 5 star restaurants and go to disney world every 3 day weekend, you deserve to live poor when you're older.

I didn't say it was bad. I just stated an (obvious) observation.

 

[3chordcharlie]

And that is bad how? America has lost sight of personal responsibility. If you choose to eat at 5 star restaurants and go to disney world every 3 day weekend, you deserve to live poor when you're older.

Good god you are predictable, annoying, selfish and always wrong!

We get it, you don't like taxes.

Now go back to your bridge.

 

[matt0611]

Really? I mean...really? I maxed out my IRA contribution last year and I am not even close to rich - unless you count someone making $50,000 a year rich. Come on - we already have a huge problem with people not saving for retirement and maxing out the existing contribution limits is easily attainable

Agreed. I worked as an intern over the summer and put $5000 into my IRA, I'm sure as hell not counting on government to support me during retirement, and I'm sure as hell not "rich".

The IRA limit should be raised to $10000 in my opinion, or indexed to inflation or something. People in this country need to learn how to save money again.

 

[Phokus]

And that is bad how? America has lost sight of personal responsibility. If you choose to eat at 5 star restaurants and go to disney world every 3 day weekend, you deserve to live poor when you're older.

Speaking of personal responsibility, did you ever take personal responsibility for stealing your roommate's shit?

 

[redgtxdi]

At least you pathetic fools can contribute to an IRA. Since I can't, I will make sure to vote for candidates that will come after your Roth gains in the future.

First, thanks Matt!! That's the basic premise of my OP.....(i.e. Why not "encourage" saving by at least raising the limit if even just a little. Especially since not everybody works where there's a 401k or SIMPLE IRA plan available to them).

And thanks to Codewhiz for shutting up Bonkers' statement, "only for the rich" when the freakin' thing is absolutely the opposite. Roth IRA screams middle-class like a raped ape!

And as to the bolded quote I should've also included in my original response to Ironwing that the one risk to all of this is that we all ASSUME for now that Roth will be unchanged when we're all retired (20 to 30 years?) down the road, but there's always the chance that things could change for Roth IRA's come retirement time for us.

And just to be diverse, I also have about $20k left from a Traditional IRA that I did *NOT* convert last year just because I don't think it'll much matter in the long run & on the outside chance that the gov't screws with Roths in the future, I'll at least have $30k I can pretend was my own tongue-in-cheek money. (shrug)

 

[Exterous]

Although I'm fine with increasing the limit, it wouldn't do anything but help the people already saving for retirement even more. Most people don't even contribute their 5k.

New cars, huge houses, and eating out is more important.

Granted I have a bias given the fact that I max it out now, but I am not big on being penalized just because the current trend is to be fiscally irresponsible. I do get your point though

Speaking of personal responsibility, did you ever take personal responsibility for stealing your roommate's shit?

Ha!

 

[dullard]

Hmm, just about anyone can do this:

$16,500 in a 401k (or similar), $5000 in a Roth or regular IRA, $3050 in an HSA, and more if you go for specialty items like college savings programs. More if you make catchup payments as you approach retirement age. Much more if your company matches.

Multiply by two if you are married (acutally a bit more than 2 since the HSA for a married couple can reach $6150). Total: $49,150 in tax free/deferred retirement savings. More if you go with other tax free/deferred non-retirement programs. More if you make catchup payments as you approach retirement age.

Over a lifetime of earnings (43 years assuming you went to college) that $49,150/year is $2.1 million in tax free/deferred even if your investments net 0% in gains. If you net 8% return and get $16.2 million in tax free/deferred investment money. And that assumes nothing is increased over the next 43 years (it will be since they are indexed to inflation) and you don't make any catchup payments. And yet you argue we need more?

How much more do you really need in tax free/deferred categories? If a couple really needs more than $49,150/year, the just buy stocks in an investment account and you get a tax savings down to 15% (or less if you are in lower tax brackets) right now for long term stock gains.

 

[dullard]

And just to be diverse, I also have about $20k left from a Traditional IRA that I did *NOT* convert last year just because I don't think it'll much matter in the long run & on the outside chance that the gov't screws with Roths in the future, I'll at least have $30k I can pretend was my own tongue-in-cheek money. (shrug)

Lots of advisors say to diversify by having both Roth and traditional IRAs. Why? Because we don't know what will happen to tax rates in the future. The biggest potential risk with a Roth IRA is a national sales tax. Not only did you pay income tax up front, but then you could be taxed again at 50+% sales tax if the fair tax ever gets passed. While those with the traditional IRA would only be taxed once in that case. That is a massive incentive to stay at least partially in traditional IRAs.

Plus, you could always lose a job, and do the conversion from traditional to Roth then when you are essentially in a 0% tax bracket. There was never a real good reason to convert it last year (other than the one time choice to spread the tax payments over two years instead of one year).

 

[redgtxdi]

dullard,

That's exactly why I didn't convert. It seems as though Roth IRA conversions were pitched as this great *opportunity* (some financial bloggers sold it hard with the gov't, too.) but I didn't see it so much as such. I figured mine was a small amount in the long run so why not just hang onto it & see what happened.

And as for why not your scenario of $49k+......well......first this is just about ROTH IRA, but aside from that, you could take away the 401k/SIMPLE if you don't consider employer help criteria. You could take away 529's if you don't consider that money already dedicated to school and I even believe HSA's have to be employer-related, but don't quote me on that.

All of that brings you back to $5K again. (For true "individual" IRA's it's either Traditional or Roth, but not both).

And further, if it matters, as I explained earlier my work's SIMPLE IRA is a good investment up until the *employer match*. After that, it leaks more in fees than it's worth compared to my Roth. Yes, I could invest more in it then but it wouldn't be the wisest investment.

Solution? ------ Raise the limits on Roth IRA's $500/yr for the next 10years. Heck, it'd still take a decade to get to less than 401k limits!!!!!

 

[Exterous]

Hmm, just about anyone can do this:

$16500 in a 401k (or similar), $5000 in a Roth or regular IRA, $3050 in an HSA, and more if you go for specialty items like college savings programs.

Multiply by two if you are married (acutally a bit more than 2 since the HSA for a married couple can reach $6150). Total: $49,150 in tax free/deferred retirement savings. More if you go with other tax free/deferred non-retirement programs.

How much more do you really need in tax free/deferred categories? If a couple really needs more than $49,150/year, the just buy stocks in an investment account and you get a tax savings down to 15% right now for long term stocks.

While I am not up on options when someone works for a company that does not offer a 401k/403b/etc but I was under the impression that they were then SOL. Are there alternatives equaling $16500 for these people of is it just the IRA option?

I also prefer the IRA option to the 401k because I have significantly more control over my investment (and withdrawl) options. (FWIW my IRA account did double the returns of the crappy one here at work. The only reason I invest in it is because of employer match)

 

[Blackjack200]

Lots of advisors say to diversify by having both Roth and traditional IRAs. Why? Because we don't know what will happen to tax rates in the future. The biggest potential risk with a Roth IRA is a national sales tax. Not only did you pay income tax up front, but then you could be taxed again at 50+% sales tax if the fair tax ever gets passed.

So the "fair tax" would include the elimination of income taxes? Hard for me to believe that would ever come to pass... but I guess you can never say never.

 

[dullard]

Solution? ------ Raise the limits on Roth IRA's $500/yr for the next 10years. Heck, it'd still take a decade to get to less than 401k limits!!!!!

Yes, 401k's often aren't the best investment since you have limited choices and often higher fees. But, my point remains: The government gives many, many choices for lots of tax free/deferred investments. Choose them if you want. I see no strong need for more. I could see arguing for less 401k and more IRA. But I don't see a strong reason to just let people put more into these types of programs.

The HSA doesn't have to be employer related at all. Although, most people do it that way.

 

[dullard]

While I am not up on options when someone works for a company that does not offer a 401k/403b/etc but I was under the impression that they were then SOL. Are there alternatives equaling $16,500 for these people of is it just the IRA option?

There are options, but they come with strings attached. One option is to switch employers to one that does have a 401K/403b/457/etc or a SIMPLE IRA (where slightly less can be saved). Another option is to "work" part time for yourself if your employer offers none of those. Then through your company you could do up to $49,000 for a SEP, or $16,500 for a self-employeed 401K, etc. I'd suggest you do that with a legitimate business, but I bet you could even open a fake online store with little to no expenses and buy your own goods and use that revenue for your retirement account.

I did something similar myself. My main employer had no retirement options, so I was going to work for myself (I even had a signed contract doing consulting). My goal was to put all that I could into my own retirement account. But, on the first day of consulting, they hired me instead part time. I put 100% of that part-time salary into a 401K just so that I can reach that $16,500 limit at the new company and dropped my regular job to part-time so I still only work 40 hours a week.

I'm not saying that you need to go to those extremes. I'm just saying that the government allows you to save a massive amount in various programs. What we need is not more govermental programs or expanded programs. We need instead more companies giving you a 401K (or similiar) with more investment options, and lower fees. This is where the market should step up to the plate, not the government.

 

[dullard]

So the "fair tax" would include the elimination of income taxes? Hard for me to believe that would ever come to pass... but I guess you can never say never.

The fair tax is often suggested as eliminating income taxes entirely. I agree though, it probably won't happen. But, that is the biggest potential problem that people with Roth IRAs could likely face (no matter how remote).

Most likely, a tax overhaul (such as that being proposed by that bipartisan commision from last month) would include some sales tax, some removal of deductions/credits and some income tax rate drops. Each income tax rate drop makes the traditional IRA a better and better choice compared to the Roth.

Right now the Roth is usually the better option, but even a slight tweak in how the government finances itself may make the Roth a crappy option. Alternatively, a tweak in the other direction could make Roths really really great (say if we return to 90% tax brackets from the mid 1900s). That is why I like to diversify with both, as I don't know what the lunatics in Washington will do.

 

[BlahBlahYouToo]

if you can afford to lock thousands of dollars into a tax-free investment account without any short-term repercussions, then you probably don't need the benefit of a tax-free investment account. it only helps the wealthy hoard more wealth, since the average salaried worker won't be able to max out their IRA contributions without impinging on their short-term financial stability.

isn't there a salary requirement to contribute to a ROTH IRA, less than $105k annually, which means he's not wealthy.

 

[Thump553]

OK, so can someone confirm my thinking is correct?

I contribute to a "ROTH BASIC" plan through Vanguard, where my contributions are made with after-tax dollars. The benefit to this is I should be able to withdraw (at age 59.5) every dollar in my account, both ones I contributed, as well as ones earned through market gains, tax free... correct?

If I were to do the opposite, which is contribute using pre-tax dollars, I would be taxed on the money in there and on whatever gains occurred during that time, right?

You're basically correct. You can also convert a traditional IRA to a Roth. They have in the past allowed you to spread the tax consequences of that conversion over multiple years, but I THINK the rule now is you get the entire whammy immediately if you convert. In other words, say you have 150k in a traditional IRA and convert all of it to a Roth. This year you have an additional $150k in taxable income (very painful one time shot). This was a smart thing to do a few years back when the market crashed if you were unemployed/underemployed then.

Personally I wouldn't stress out too much about the $5,000 limit (for a couple of decades the limit was more like $2,000)-the more important thing is to actually invest in the Roth or traditional IRAs each and every year to the maximum extent you can, especially early on. Personally I favor traditional IRAs because of the pre-tax status of the contributions-but you pay the piper down the road.

A couple of notes: (1) last I knew you had to declare the value of your IRA holdings when your kids apply for student loans (unlike the equity in your house) and (2) the penalties are very painful for early withdrawals from IRAs, so don't treat them as your sole savings.

 

[JS80]

Are you unemployed?
That means you'll start voting Democrat now???

http://retireplan.about.com/od/iras/a/2011-Roth-Ira-Income-Limits.htm