Author Topic: Roth or Traditional ?  (Read 3198 times)

jbert

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Roth or Traditional ?
« on: March 18, 2016, 09:17:28 AM »
I am currently a stay at home mom (my children are 5 and 2) but I do work 10 hours a week, and my husband has a traditional IRA that we want to max out every year.  I don't have a retirement account yet (I know, bad)!  but I keep hearing conflicting information about which type to open for myself.  '

My husband makes $57,000 gross - he has a traditional IRA
I make about $13,000 gross - I have none

I heard on "Radical Personal Finance" that both Roths and IRA actually net the same money in the end and that he prefers traditional IRA's but i have seen on here that many say that the other spouse should open a Roth?

I am confused as to which type should I open?  It seems that we fall into the 25% tax bracket combined ...


slugline

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Re: Roth or Traditional ?
« Reply #1 on: March 18, 2016, 12:42:29 PM »
The longstanding "rule of thumb" is to go with Traditional if you think you will be in a lower tax bracket in retirement and Roth if you don't. Because your contributions to a Roth are available pre-retirement without penalty, some advocate using the Roth because it can double as an emergency fund. I think for most people, however, it won't matter very much either way. The most important thing is to have a healthy savings rate and take advantage of time in the investment markets.

slugline

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Re: Roth or Traditional ?
« Reply #2 on: March 18, 2016, 12:54:41 PM »
Also, there are some online calculators out there that will let you play with the numbers yourselves. Here's one from Bankrate:

http://www.bankrate.com/calculators/retirement/roth-traditional-ira-calculator.aspx

Trip

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Re: Roth or Traditional ?
« Reply #3 on: March 18, 2016, 01:39:43 PM »
The Mad Fientiest has an excellent article on whether a Roth or Traditional IRA is better

seattlecyclone

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Re: Roth or Traditional ?
« Reply #4 on: March 18, 2016, 02:12:52 PM »
I heard on "Radical Personal Finance" that both Roths and IRA actually net the same money in the end...

This is true if and only if your tax bracket is the same now as it is in retirement. Otherwise choose Roth if you plan to have a higher tax bracket in retirement and choose traditional if you plan to have a lower tax bracket in retirement.

Most of us plan to have lower incomes (and thus will likely have lower tax brackets) during retirement, so we tend to prefer traditional retirement contributions where possible.

Telecaster

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Re: Roth or Traditional ?
« Reply #5 on: March 18, 2016, 02:35:13 PM »
^ This.  And it also assumes you contribute the same amount of money to each one.  But if you are saver, the tIRA means you save money right now, which can also invest.   

Curbside Prophet

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Re: Roth or Traditional ?
« Reply #6 on: March 18, 2016, 02:49:40 PM »
You also need to take into account what you feel the tax laws will be likes years down the road.  Have you seen the US debt levels?  How do you think that will be paid back?  Just food for thought.

braje

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Re: Roth or Traditional ?
« Reply #7 on: March 18, 2016, 02:52:28 PM »
I don't think you are anywhere near the 25% tax bracket.
Before deciding on whether Traditional IRA or Roth you should look at IRS form 8880 (retirement savers credit)  MFJ AGI for 2015 would need to be less than $61000 and for 2016 $61500.

jbert

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Re: Roth or Traditional ?
« Reply #8 on: March 18, 2016, 03:14:40 PM »
Thank you all ...

I didn't think we would be anywhere near the 25% tax bracket either but we received a big refund this time and my sister, who is an accountant, had us revise our exemptions and it seems to be exactly 15% for him and 10% comes out of my checks ... Health insurance is pretax and does come out of his check so maybe i am figuring it out incorrectly

I am not working much now but hope to increase my salary to be the same as his when I go back to work in a few years (my parents own a business and they are just waiting on me to come back), and since we are pretty much living on his income only n ow, we could put my entire check away into savings when I go back to work ....

seattlecyclone

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Re: Roth or Traditional ?
« Reply #9 on: March 18, 2016, 03:22:43 PM »
Your tax bracket is not the percentage that gets taken out of your paycheck for taxes. Instead it's the tax rate you would pay on the next dollar you earn.

Your first few dollars are taxed at a lower rate than the next few, and it goes up from there. The paycheck withholding, assuming it's even correct, will be the average tax rate on all your money, not the top tax rate on your last dollar.

jbert

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Re: Roth or Traditional ?
« Reply #10 on: March 18, 2016, 03:28:28 PM »
I guess what i mean is the average net paychecks seem to be a total of 75% of our gross combined , so thats not the same? I am a little flaky with the tax stuff, I'm learning!

teen persuasion

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Re: Roth or Traditional ?
« Reply #11 on: March 18, 2016, 06:05:31 PM »
I guess what i mean is the average net paychecks seem to be a total of 75% of our gross combined , so thats not the same? I am a little flaky with the tax stuff, I'm learning!

Your net checks will be after FICA, state, fed, and health insurance are all deducted.