"Caroline" <caroline10027remove[at]earthlink.net> wrote in message
news:kv4pc.205$H_3.117[at]newsread1.news.pas.earthlink.net...
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Statistically speaking, he's right, and you're wrong.

The average SS recipient today, with 30 years of receipts, takes home MORE
today than they did while working full time. They also pay a LOT more in
income taxes, because SS payments were origionally income tax free.

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Incorrect. Payroll deduction plans have been around since the dawn of the
IRA. Some employers DO contribute, just like any other welfare benefit
program.

They can even discriminate, too.

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

Richard Cline <dcline[at]silcom.com> wrote:
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I look at my IRA as extra insurance on my retirement income since it is
lower than my conventional savings & investments as well as being lower
than my employer's retirement account. I am an optimist, but like to be
cautious. OK, I am mostly invested in the stock market, so I am not that
cautious.

--
Ron

Ed Zollars, CPA <ezollar[at]mindspring.com> wrote:
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You're right, I was thinking about my situation where I have an employer
sponsored retirement plan.

--
Ron

In article <10a9o94oj81r348[at]corp.supernews.com> , Ron Peterson
<ron[at]shell.core.com> wrote:

It would be foolish to plan on taxes going down. It is equally likely
that taxes will go up. As you indicate, there is a possibility that a
person may come on hard times. It is more probable that one who strives
for success will prosper financially. I elect to be an optimist about
my future and my investment options.

Dick

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Which is why I said, "Unless the deduction is crucial to his financial health,
this is a non reason for going regular IRA as opposed to a Roth."

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Not necessarily true!


First what do you consider a real high income?

Seconf, the amount of income is immaterial if he is not an active particpant in
an employer's plan.

The deduction phases out between $40,000 and $50,000 for a single person and
between $60,000 and $70,000 for a maried person filing jointly. By no means a
"real high income" but still nothing to sneeze at.



There is a possibility that many years in the future income
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Ron Peterson wrote:

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Not necessarily--you can have $1,000,000 in income and be eligible
to make a deductible IRA contribution. The real issue is whether
you are considered a participant in an employer sponsored retirement
plan.

Now, while that might be true of the majority of high income
taxpayers, it's not true of all. There are various reasons why
someone with a high income might not be a participant in an employer
sponsored retirement plan--even if they control that employer
(coverage cost for the rank and file is too high, and rank and file
deferrals into a 401(k) are so low without a safe harbor plan that
the owner's deferrals would not be enough to justify moving away
from just an IRA).

--
Ed Zollars, CPA
Phoenix, Arizona

PaulMaf <paulmaf[at]aol.com> wrote:
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When a person is starting out, the tax deduction is crucial. If the tax
deduction is present, it indicates a person doesn't have a real high
income. There is a possibility that many years in the future income
taxes may go down, or there is a possibility a person may come upon hard
times and not be in a high tax bracket when the money is withdrawn.

--
Ron

"Richard Cline" <dcline[at]silcom.com> wrote
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I wouldn't say "quite likely." People's circumstances change too much for such a
generalization, IMO.

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Maybe.

It's a crap shoot where one forecasts as best as one can.

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Only individuals, not employers, may contribute to a traditional IRA or Roth
IRA.

The original poster did not ask about any other type of IRA.

snip
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This isn't a penalty in the usual, tax law sense. The taxes on the money in a
traditional IRA have to be paid at some point. When converting, one is just
paying them earlier and on a lot less accumulated earnings.

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But presumably you ran the numbers and found these tax bills to be less than
what you would have paid at retirement.

It's not a big deal. If one decides a Roth IRA is superior, and one has spare
cash outside the traditional IRA's holdings to pay the tax bill of conversion,
generally it pays to convert. One just looks to convert more in lower income
years than in higher income years. Plenty of online guides exist for the
process. E.g. http://www.calcbuilder.com/cgi-bin/c.../themotleyfool

But this is really beyond the scope of the original question.

In article <nwSoc.19170$Hs1.17265[at]newsread2.news.pas.earthlink.net> ,
"Caroline" <caroline10027remove[at]earthlink.net> wrote:

- quote -

to an IRA, it is quite likely that your retirement income will exceed
your present income. It may be that a mix of the two is the best
solution. If your employer contributes to your IRA it makes the choice
fairly simple.


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The conversion comes with the penalty of paying the taxes that would
have otherwise been due. It is not something that is done casually. I
will admit that I converted about 1/5 of my IRA to a Roth and paid some
hefty tax bills.

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Why?

Unless the deduction is crucial to his financial health, this is a non reason
for going reguylar IRA as opposed to a Roth.

Generally:

If you expect your tax bracket to be higher in retirement than it is now, start
a Roth IRA. Financially you will be better off than if you contributed to a
traditional IRA where you deduct from your income the trad. IRA contribution.

Also, as a matter of tax law, the Roth IRA is far more flexible (that is, lesser
or no financial penalties) when it comes to withdrawing. This includes
withdrawing contributions before retirement as well as withdrawing both
contributions and their earnings after retirement.

Lots of sites discuss this, including what the eligibility requirements are for
each IRA. See for example http://www.fairmark.com/rothira/rothvreg.htm

Whether the tax law on IRAs will change is important, but it is also
speculation. One always has to roll the dice, to some extent, even in the most
benign-sounding investment plans.

If you find a good reason to go with the traditional IRA, remember you often
will have the option to convert this to a Roth IRA in subsequent years. (I
won't say "always" because conversion is subject to how much one's income is
each year, among other limitations.)

I think the key for you is to start socking money in one or the other a.s.a.p.
Both offer a tax break compared to not putting any money into an IRA.

"Jimmy Smith" <nospam[at]pleaseno.more> wrote
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Jimmy Smith wrote:
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Jimmy,
No there's no formula really. A couple of scenarios favor the Roth:

If you are saving aggressively enough (or your net worth is already high
enough) that you are pretty confident that you'll retire with a decent
amount of money, the Roth has some big advantages. People in that
situation typically don't want or need to draw down their IRAs very much
in retirement, but with a traditional IRA you're forced into it - along
with the taxes that go with it. Roths have no "minimum required
distributions." You can just let them grow without taking much if
anything out - in fact it's typically best to make this the "last
dollar" that you tap into. This is important for the many retirees who
at least initially see their net worth grow during retirement.

If your current tax rate is low then you'll be getting only a small
benefit from the tax deduction that comes from a Traditional IRA
contribution. To me that favors a Roth IRA. Think of it as a couple
hundred bucks to generate what might be many thousands in avoided taxes
in the future.

If you think future tax rates are heading up, then you might pick the
Roth. With a Roth you're essentially paying your taxes now, before
contribution, instead of in the future (when you take the money out of a
Traditional IRA).

I do like the idea of setting aside tax-exempt dollars, and Roths are
one of the very few ways to do that. And I hope that if the laws about
Roths are changed at some point, to impose some taxes, they would
"grandfather in" existing accounts. So I very often lean in favor of the
Roth.

-Tad

"Jimmy Smith" <nospam[at]pleaseno.more> wrote in message
news:vUJoc.8390$U4.7019[at]bignews6.bellsouth.net...
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Jimmy,

If tax laws and rates stay constant for many, MANY years to come, the Roth
often comes out ahead (assuming any current tax savings is spent, not
saved).

Guess what? The tax laws and rates change damn near every year. Betting on
them staying the same is truly gambling. Plus, few people reinvest tax
savings.

There is an old axiom: A bird in the hand is better than two in the bush.

A current tax deduction will make a difference THIS YEAR. That's MORE money
you can spend TODAY.

I've seen some really sophisticated stochastic analysis, including variables
such as tax law changes (with futurist comments and predictions),
incorporating option pricing, and after one wakes up from the bordeom
induced coma these studies cause, I find it easier and easier to default to
a current benefit over a future promise that may not be kept.

Everyone's mileage will vary.

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

PaulMaf wrote:

- quote -

Actually, the way Congress works, the most likely way they'd "foul
up" a Roth IRA is not by subjecting the earnings in the IRA to
taxation, but rather by doing something else to make the
alternatives more attractive. For instance, let's say Congress gets
generous and later passes a law where no earnings on retirement
funds are taxed--rather you only pay tax on the amount you
previously got to deduct. Sounds great, but it would suggest that
having put away in Roth IRAs didn't make much sense (and, no, I
don't know of any proposal out there to do this--it's just an
example <grin> , but it would flow from the idea of not taxing
dividends that was floated last year).

Remember the election to pay tax on the appreciation for securities
you held on January 1, 2001 so that you could eventually qualify for
the special five year capital gain rate? Well, if you elected to do
that it doesn't look like a smart move right now--and not because
you will now pay tax at a higher rate on your appreciation in the
future, but because Congress got generous and now *everyone* gets
that same lower rate--but they didn't have to pay the extra tax back
in 2001.

Like you, I agree that if they do decide to "end" the Roth IRA
system, they almost certainly would grandfather existing Roth IRAs
and just keep you from putting more money into them.

--
Ed Zollars, CPA
Phoenix, Arizona

Jimmy Smith <nospam[at]pleaseno.more> wrote:
- quote -

If you are qualified to claim an IRA tax deduction, use a traditional
IRA otherwise use the Roth IRA because it will eliminate future taxes.

I believe that you can have both types of IRAs, so you can change your
strategy if your tax deduction changes.

--
Ron

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Skip, what's the difference?

If Congress decides to tax Roth's in the future the most likely scenario will
be to grandfather existing one's.

But even if they don't, someone with a Roth ends up with an IRA that has a cost
basis, just like non-deductible contributions to regular IRAs now.

Meanwhile, they are taking a good chance of putting aside money and realize
earningsd that will never be taxed.

How does one go about determining whether a person should have a Roth IRA or
a Traditional IRA? Is there a formula?

Jimmy

On Thu, 13 May 2004 07:35:57 CST, "Jimmy Smith" <nospam[at]pleaseno.morewrote:

- quote -

Assuming you qualify for both, another interesting question would be,
"Do I believe Congress will leave the IRA provisions in the Internal
Revenue Code untouched until I want to withdraw?"

-HW "Skip" Weldon
Columbia, SC