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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5069  
Subject: Re: So it begins! Date: 12/10/2003 1:53 AM
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After that, pushing toward the limit on your contribution can be addressed in a more leisurely fashion - in fact I'd recommend it wait until AFTER you are maxing an IRA. (Preferably a conventional IRA if you intend to retire before age 55.)

What reason would you go with conventional versus Roth for retiring before 55?


My understanding is that 72(t) withdrawals from a Roth IRA (beginning when TOTAL withdrawals from the account exceed total contributions) are taxed as ordinary income.

So, as compared to taking 72(t) withdrawals from a conventional IRA (where the contributions were deductible), you have given up the tax deferral on the contributions - and taken on some extra bookkeeping work to keep track of when you are withdrawing contributions and when you aren't - and gotten absolutely nothing in exchange for it.

It's pretty easy to construct a plausible scenario where that will make a difference of more than 10% in the after-tax retirement income that results from a given pre-tax earned income. Here's one: $6000 pre-tax earnings to plow into investments (minus federal income taxes on any portion of the $6000 that may be subject to them); $3000 cap on IRA contributions; invested amounts will grow to 5 times original value before they are withdrawn; marginal federal tax rate 33% both before and after retirement. And the preference is for the conventional IRA with deductible contributions.

If you don't happen to be eligible to deduct conventional-IRA contributions, of course, this advantage disappears. And the bookkeeping is about the same either way.
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