Roth IRA vs Traditional IRA

[BigFatCow]

I want to start some kind of retirement plan. Whats the differences between a Roth IRA and a traditional IRA?

 

[dionx]

Roth IRA - you contribute money thats already been taxed and when you withdraw, your contribution and earnings are tax-free
Traditional IRA - the money you contribute is deducted from you adjusted gross income. however when you withdraw, you must pay taxes on your contributions and earnings

so it's basically pre-tax dollars vs post-tax dollars

if you are young, Roth is better.

 

[BigFatCow]

cool, i guess since im only 19 i should probally setup a Roth IRA. Thanks for the info. Im still gonna look into it some more but ill probally end up setting up a Roth IRA in the next few days.

 

[Otaking]

Wow, 19 and thinking about retirement? Good man. :thumbsup:

 

[dquan97]

set up the roth ira. If you have contributed up to the max, think about an educational ira

 

[zerocool1]

I'm thinking of the doing the same actually.

 

[Ferocious]

bleh wait till you're 25 to start saving.

PARTY!!!!!!!!

 

[geckojohn]

where are you going to setup your Roth IRA account with?

I'm thinking about maybe using Vanguard.

 

[OulOat]

There is an income limit for both Roth and Traditional tax breaks. For a single person, Roth is $95,000 while Traditional is, depend on your situation, usually unlimited. If your salary exceeds 95k, you will have to switch to Traditional.

Here an old chart, still informative

 

[DaveSimmons]

Vanguard is good, and VFINX (S&P 500 index) is a very good choice for a first mutual fund

 

[gopunk]

Originally posted by: DaveSimmons
Vanguard is good, and VFINX (S&P 500 index) is a very good choice for a first mutual fund

:thumbsup:

just maxed out my '05 contributions with VFINX

 

[Apathetic]

Originally posted by: BigFatCow
cool, i guess since im only 19 i should probally setup a Roth IRA. Thanks for the info. Im still gonna look into it some more but ill probally end up setting up a Roth IRA in the next few days.

You DEFINATELY weant to set one up. You'll be able to retire early and pretty much be set for life if you do.

Dave

 

[AnyMal]

Originally posted by: BigFatCow
cool, i guess since im only 19 i should probally setup a Roth IRA. Thanks for the info. Im still gonna look into it some more but ill probally end up setting up a Roth IRA in the next few days.

Roth IRA limits you to $3,500.00 a year max contribution.

 

[Pabster]

19? Get on the Roth train right away!

 

[Engineer]

Originally posted by: AnyMal

Originally posted by: BigFatCow
cool, i guess since im only 19 i should probally setup a Roth IRA. Thanks for the info. Im still gonna look into it some more but ill probally end up setting up a Roth IRA in the next few days.

Roth IRA limits you to $3,500.00 a year max contribution.

It increased to $4000 this year. $4,500 if you're over 50 in "catch up" mode.

Goes to $5000 in 2008 and then will be indexed to inflation in $500 increments.

Remember, if you contribute to a 401k plan, you'll be limited to little or no contribution to a traditional IRA. You can still contribute to a Roth however.

 

[IHateMyJob2004]

Originally posted by: Otaking
Wow, 19 and thinking about retirement? Good man. :thumbsup:

:beer::beer::beer::beer::beer:

 

[AnyMal]

Originally posted by: Engineer

Originally posted by: AnyMal

Originally posted by: BigFatCow
cool, i guess since im only 19 i should probally setup a Roth IRA. Thanks for the info. Im still gonna look into it some more but ill probally end up setting up a Roth IRA in the next few days.

Roth IRA limits you to $3,500.00 a year max contribution.

It increased to $4000 this year. $4,500 if you're over 50 in "catch up" mode.

Goes to $5000 in 2008 and then will be indexed to inflation in $500 increments.

Remember, if you contribute to a 401k plan, you'll be limited to little or no contribution to a traditional IRA. You can still contribute to a Roth however.

good info, thanks

 

[Legend]

I'm 21, and I've wanted to start a Roth IRA for the past 2 years but I've been at college and I've got some 5k+ in student loans already. Should I start a Roth IRA anyway?

 

[OulOat]

Originally posted by: Legend
I'm 21, and I've wanted to start a Roth IRA for the past 2 years but I've been at college and I've got some 5k+ in student loans already. Should I start a Roth IRA anyway?

What is your interest rate? Student loans from the Edu department usually have very low interest rates, so Roth would be ideal.

 

[Legend]

I don't know at all. My dad's a CPA accountant so he's always done this stuff without showing me. I'm very interested to know myself.

I thought interest didn't start until after graduation? Or am I being niave?

I do make a bit of money as a co-op student, and I just got a scholarship that'll give me a full ride next year. So I think I'll go ahead and start a Roth IRA this fall. I'd do it now but I have only so much money and I need some of it when I move to do my last co-op term.

 

[Ferocious]

Are your retirement taxes going to be higher or lower than your taxes while accumulating?

For most people it will probably be lower. Especially if they move from a state with income taxes to a state with no income taxes.

On paper...it would appear a traditional IRA is better for a lot of people assuming of course you can make tax-deductible contributions....at least in terms of total value.

 

[BigFatCow]

Originally posted by: geckojohn
where are you going to setup your Roth IRA account with?

I'm thinking about maybe using Vanguard.

I was just thinking about using etrade since i already have an account setup there. Is this a good idea or not? I also just started looking at www.usaa.com, its for active duty military only.

Originally posted by: OulOat
There is an income limit for both Roth and Traditional tax breaks. For a single person, Roth is $95,000 while Traditional is, depend on your situation, usually unlimited. If your salary exceeds 95k, you will have to switch to Traditional.

Here an old chart, still informative

currently my salary doesnt even come close to 95k so thats not a problem right now, but in the future if my salary does go over 95k can i just switch the roth IRA to a traditional?

 

[OrganizedChaos]

good idea for a thread. i'm 19, fresh out of highschool and don't want to end up like my parents

 

[Engineer]

Oh, and a :thumbsup: to the OP for early fiscal responsibility!

I would give you a :beer:, but you're under age!

 

[shopbruin]

Originally posted by: Legend
I don't know at all. My dad's a CPA accountant so he's always done this stuff without showing me. I'm very interested to know myself.

I thought interest didn't start until after graduation? Or am I being niave?

check if you loan is subsidized or unsubsidized.

subsidized - you don't pay interest until you're out
unsubsidized - interest accrues the second you take the loan. you do have the option of paying the interest while you are in school, or you can defer until you graduate.