Professional Courtesy Among Ledgies

David · #1 10-19-2005, 11:46 AM

I notice that virtually every ledgie has an interesting skill or knowledge base of something. So I thought it would be nice if we could all help one another answer one another's questions about whatever. There is a lot of ledgie talent on the forum: teachers, accountants, healthcare practitioners, musicians, editors, bankers, loan officers, plumbers, students, retailers, writers, scientists, veterinarians, &c.

I'd like to know, in plain simple English, what the benefits are of a Roth IRA compared with my 401(k). I'm maxing on my 401(k) but Suze Orman says to consider Roth IRAs, & I didn't catch her reasons. Any of our money-minded or retirement-minded ledgies able to help me?

If anyone has an editorial question, I'll try to help -- that's how I make my living.

irishgrl · #2 10-19-2005, 11:56 AM

David, I did a search and came up with this:
What is a Roth IRA?
--------------------------------------------------------------------------------
Depending on your personal tax situation, a Roth IRA can be an excellent alternative to a Traditional IRA. Not everyone, however, is eligible to contribute to a Roth IRA. To be eligible to contribute:

You must have compensation income for the year; and
Your "modified adjusted gross income" must not exceed certain limits
Although contributions to a Roth IRA are not deductible, Roth IRAs can distribute their earnings free of federal income or penalty taxes if certain requirements are met. (Withdrawals of contributions made to a Roth IRA are not subject to federal income or penalty taxes.) For earnings to be withdrawn tax-free, they cannot be distributed until five tax years have passed since the first day of the tax year in which you made your initial Roth IRA contribution (including a conversion contribution from a Traditional IRA). For 2005, eligible individuals can generally contribute up to $4,000, or 100% of compensation, whichever is less. An individual's eligibility to make Roth IRA contributions phases out at certain levels of "modified adjusted gross income". Please see table below for more details).

If you would like to learn more about which type of IRA might be most appropriate for you, our comparison table provides some basic background information. If you are interested in converting your Traditional IRA to a Roth IRA, you may want to use this checklist to see if a conversion may be right for you.1 If you would like to find out more about rollovers or how to rollover an IRA to E*TRADE Securities, please visit our Rollover Center. Before converting a Traditional IRA to a Roth IRA, we recommend that you consult a tax professional.

How much are you Eligible to Contribute to a Roth IRA for your 2005 tax year?

Federal Income Tax Filing Status Modified Adjusted Gross Income ("MAGI") Maximum Amount You Can Contribute for 2005 (not including catch-up contributions)
Single Up to $95,000 $4,000
$95,001-$109,999 Less than $4,000
$110,000 or more Not eligible
Married, filing jointly (MAGI numbers reflect both spouses' combined incomes) Up to $150,000 $8,000 ($4,000 per IRA)
$150,001-$159,999 Less than $8,000 ($4,000 per IRA)
$160,000 or more Not eligible
Married, filing separately Up to $9,999 Less than $4,000
$10,000 or more Not eligible
1. Please note that our Roth to Traditional checklist is intended to serve as an educational tool, not investment or tax advice. Your circumstances are unique. Therefore you should consult a tax professional if you feel you need more personal advice.

here's another link
http://www.gofso.com/Premium/TS/fg/fg-Roth_IRA.html

skcin · #3 10-19-2005, 11:57 AM

I love Suze! I'm no expert, but I know she prefers Roth IRA's to conventional IRA's because although you pay taxes on it now, you do NOT pay taxes on your withdrawl from the Roth after retirement age.

A regular IRA is pretax, which is great right now BUT you will pay taxes when you withdraw - at the tax bracket you are in at THAT time, not at the time you contributed.

As far as the Roth vs. 401K, after you have reached your max (the company has maxxed their contribution), she sees no point in putting more $$$ in if they are no longer matching you.

I think. Someone correct me if I'm an idiot.

SuzeQuze · #4 10-19-2005, 12:56 PM

Quote:

Originally Posted by skcin

I love Suze! I'm no expert, but I know she prefers Roth IRA's to conventional IRA's because although you pay taxes on it now, you do NOT pay taxes on your withdrawl from the Roth after retirement age.

A regular IRA is pretax, which is great right now BUT you will pay taxes when you withdraw - at the tax bracket you are in at THAT time, not at the time you contributed.

As far as the Roth vs. 401K, after you have reached your max (the company has maxxed their contribution), she sees no point in putting more $$$ in if they are no longer matching you.

I think. Someone correct me if I'm an idiot.

You're right on the money there. She said this at her book talk in Boston earlier this year. Due to the performance of the stock market she changed her advice about maxing out your 401k contributions to only putting in what your employer matches.

I recently found out my employer matches nothing, but perhaps will match at its discretion after the end of the year. They used to have a really decent match but I didn't get into it before and it looks like I won't be getting into it now either.

skcin · #5 10-19-2005, 01:17 PM

I work for the state, so they don't match anything obviously. I do have a mandatory retirement contribution, but damned if I know where it's going.

I know that I really have to get more organized as far as all this goes, but I haven't been able to yet.

DavidMn · #6 10-19-2005, 06:26 PM

Quote:

Originally Posted by irishgrl

David, I did a search and came up with this:
What is a Roth IRA?
--------------------------------------------------------------------------------
Depending on your personal tax situation, a Roth IRA can be an excellent alternative to a Traditional IRA. Not everyone, however, is eligible to contribute to a Roth IRA. To be eligible to contribute:

You must have compensation income for the year; and
Your "modified adjusted gross income" must not exceed certain limits
Although contributions to a Roth IRA are not deductible, Roth IRAs can distribute their earnings free of federal income or penalty taxes if certain requirements are met. (Withdrawals of contributions made to a Roth IRA are not subject to federal income or penalty taxes.) For earnings to be withdrawn tax-free, they cannot be distributed until five tax years have passed since the first day of the tax year in which you made your initial Roth IRA contribution (including a conversion contribution from a Traditional IRA). For 2005, eligible individuals can generally contribute up to $4,000, or 100% of compensation, whichever is less. An individual's eligibility to make Roth IRA contributions phases out at certain levels of "modified adjusted gross income". Please see table below for more details).

If you would like to learn more about which type of IRA might be most appropriate for you, our comparison table provides some basic background information. If you are interested in converting your Traditional IRA to a Roth IRA, you may want to use this checklist to see if a conversion may be right for you.1 If you would like to find out more about rollovers or how to rollover an IRA to E*TRADE Securities, please visit our Rollover Center. Before converting a Traditional IRA to a Roth IRA, we recommend that you consult a tax professional.

How much are you Eligible to Contribute to a Roth IRA for your 2005 tax year?

Federal Income Tax Filing Status Modified Adjusted Gross Income ("MAGI") Maximum Amount You Can Contribute for 2005 (not including catch-up contributions)
Single Up to $95,000 $4,000
$95,001-$109,999 Less than $4,000
$110,000 or more Not eligible
Married, filing jointly (MAGI numbers reflect both spouses' combined incomes) Up to $150,000 $8,000 ($4,000 per IRA)
$150,001-$159,999 Less than $8,000 ($4,000 per IRA)
$160,000 or more Not eligible
Married, filing separately Up to $9,999 Less than $4,000
$10,000 or more Not eligible
1. Please note that our Roth to Traditional checklist is intended to serve as an educational tool, not investment or tax advice. Your circumstances are unique. Therefore you should consult a tax professional if you feel you need more personal advice.

here's another link
http://www.gofso.com/Premium/TS/fg/fg-Roth_IRA.html

That's excellent information!!! thank you for sharing it.

chiliD · #7 10-19-2005, 06:47 PM

Ok, 401k's fine...but what about 403b's for state employees? What are the maximum contributions for those?

catinthedark · #8 10-19-2005, 10:38 PM

Quote:

Originally Posted by David

If anyone has an editorial question, I'll try to help -- that's how I make my living.

As in, you're a journalist? An editorialist? (I'm not being snarky - just seeking clarity).

David · #9 10-19-2005, 11:57 PM

Quote:

Originally Posted by catinthedark

As in, you're a journalist? An editorialist? (I'm not being snarky - just seeking clarity).

Copy editor, formerly for newspapers & currently for tech publishing houses.

I can also help you with your nutritional needs & W.C. fields lore!

I want to thank all the folks who provided info on 401(k) vs. Roth IRA above. It's time to do a little rearranging.

SuzeQuze · #10 10-20-2005, 07:39 AM

Quote:

Originally Posted by David

Copy editor, formerly for newspapers & currently for tech publishing houses.

I can also help you with your nutritional needs & W.C. fields lore!

I want to thank all the folks who provided info on 401(k) vs. Roth IRA above. It's time to do a little rearranging.

Your work is very similar to mine except I read for the technical errors and not so much grammatical, although if the copy editor missed them on the first pass I correct those as well.

As a hobby I take pictures and also fix them up in Photoshop. Below is a photo I just restored.

John Run · #11 10-20-2005, 09:00 AM

David-

One thing to be aware of is you are limited to 4,000 annual contributions per person, 8000 if you are married with a Roth. Even with the obvious Tax savings of a Roth that is not enough to ignore your 401k. The EGTRRA of 2001 peeled away a lot of the limits to 401k contributions.

For 2006 You can Contribute up to 15,000 pre-tax. Granted a lot can not afford that much, but believe me there is a benefit to maxing your Roth and then putting as much into the 401k as possible. The obvious is the more you put away the sooner you can retire....However there is a more complicated tax burden scenario to consider. You are making more now than you will in retirement. The tax burden on your earnings now are greater than they will be in retirement because your retirement distributions will be far less than your current income, you will pay less taxes on that money in the future than you would if you take it as net pay now. Also by investing it in your 401k you are hopefully repelling inflationary pressures on your current earnings versus future distributions.

The bottom line the extra $20 a week you put into your 401k will be taxed less when you retire and could be worth more than $20 today that you spend on something you won't remember anyway.

catinthedark · #12 10-20-2005, 10:55 AM

Quote:

Originally Posted by David

Copy editor, formerly for newspapers & currently for tech publishing houses.

I can also help you with your nutritional needs & W.C. fields lore!

Ah, cool. I'm a broadcast journalist, myself!

I'll keep you in mind next time I need a quick answer on WC Fields!

skcin · #13 10-20-2005, 10:58 AM

Quote:

Originally Posted by John Run

....However there is a more complicated tax burden scenario to consider. You are making more now than you will in retirement. The tax burden on your earnings now are greater than they will be in retirement because your retirement distributions will be far less than your current income, you will pay less taxes on that money in the future than you would if you take it as net pay now...

John - I was under the impression that when you withdrew $$$ from a conventional IRA after you retire, that the tax rate is based on what your highest salary was before you retired - am I wrong? Help please.

John Run · #14 10-20-2005, 11:12 AM

Two Answer a couple of questions.

Chili for 2006 the IRS sets the 403B limit at 15,000 the same as a 401k.

Paula You will be taxed at whatever your current tax rate is when you make withdrawals from an IRA or 401k after age 59.5

irishgrl · #15 10-20-2005, 11:36 AM

Quote:

Originally Posted by David

Copy editor, formerly for newspapers & currently for tech publishing houses.

I can also help you with your nutritional needs & W.C. fields lore!

I want to thank all the folks who provided info on 401(k) vs. Roth IRA above. It's time to do a little rearranging.

David is your sig from the Night Stalker? I LOVED that show....