Author Topic: Reevaluating RothIRA vs. Traditional IRA for my situation  (Read 2714 times)

bo_knows

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Reevaluating RothIRA vs. Traditional IRA for my situation
« on: February 26, 2013, 07:06:32 AM »
I know that this topic rolls around every so often, but I wanted to expressly ask the forums opinion on my particular situation.

We're 31, we have 1 kid, we're maxing out (17.5k) each of our 401k's which have decent investment options, maxing out our Roth IRA's, contributing to a 529, and contributing "extra" to a post-tax brokerage account (Vanguard Funds), and we have to following balances:

- Combined 401ks - $200k
- Combined Roth IRAs - $60k
- Combined Post-tax brokerage - $40k
- ING Cash - $15k

Currently, our combined gross salary is $150k (with my wife working 60%FT, which will continue for 3-5yrs, then she'll go 100%FT again). We've been contributing to a Roth IRA for the last number of years with the intention that it's good to be able to pull out the contribution portion in case of emergency or first home purchase. Well, seeing as we have bought a home already and have (what I consider, based on our expenses) a sizeable cash/brokerage stash for emergencies, those ideas seem moot.

If we're potentially looking to move into Semi-ER or full on FIRE sometime in the 10-15yr timeframe, should we be contributing to a Traditional IRA instead? When we start looking toward actually retiring, a TIRA would be eligible for 72t or the Roth-IRA-pipeline method, right?

It seems to me the usefulness of the Roth has passed us by, and I just wanted some clarification from others.

icefr

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Re: Reevaluating RothIRA vs. Traditional IRA for my situation
« Reply #1 on: February 26, 2013, 07:39:03 AM »
Since you have a 401(k) at work, your combined MAGI has to be under $115,000 to be eligible for the TIRA deduction. [1] I would keep putting money into the Roth IRA since it's more useful than a non-deductible Traditional IRA.

[1] http://www.irs.gov/Retirement-Plans/2013-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-Covered-by-a-Retirement-Plan-at-Work

Another Reader

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Re: Reevaluating RothIRA vs. Traditional IRA for my situation
« Reply #2 on: February 26, 2013, 08:15:04 AM »
Don't forget you can pull out the Roth contributions without penalty at any time. 

In your shoes, I would bulk up the taxable accounts with dividend paying equities and some growth stocks that would be subject to capital gains treatment when sold.  Do this regularly.  Plan to hold these long term, trimming here and there as opportunities appear or companies change.  Long hold periods and relatively favorable tax treatment of the income and capital gains will work in your favor.

bo_knows

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Re: Reevaluating RothIRA vs. Traditional IRA for my situation
« Reply #3 on: February 26, 2013, 08:50:22 AM »
Don't forget you can pull out the Roth contributions without penalty at any time. 

In your shoes, I would bulk up the taxable accounts with dividend paying equities and some growth stocks that would be subject to capital gains treatment when sold.  Do this regularly.  Plan to hold these long term, trimming here and there as opportunities appear or companies change.  Long hold periods and relatively favorable tax treatment of the income and capital gains will work in your favor.

I do know that I can pull Roth contributions out, I just thought that it would be more advantageous to tax-defer the money. However, I was under the impression (as of writing the OP) that the income limits for TIRA were the same as Roth IRA. Apparently that's not the case. We can't deduct TIRA, so it seems like Roth is the main option. Makes this thread a bit moot.