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Author: BordLyron Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75383  
Subject: Roth vs Taxable Account Date: 8/15/2011 11:46 PM
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I'm sure this has been discussed here before, so feel free to point me in that direction.

I have a Roth, my wife has a TRAD, & I have a 401(k). We also have some money (currently 1-year's living expenses) in a savings account paying 1%. I'm torn between halting future contributions to my wife's TRAD IRA & opening a Roth for her vs simply putting that money (along with some of the other static money - my job is quite safe - she doesn't work) into investments (not savings, but securities) in a taxable account.

If I understand things correctly, we (or if I perish early, she) will be able to withdraw the principle of the Roth contributions at any time after the first five years. We expect to survive at least that long. So what would be the advantage, other than immediate liquitidy, of putting money into a non-deferred vehicle instead of a Roth?

Byron
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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69420 of 75383
Subject: Re: Roth vs Taxable Account Date: 8/16/2011 12:23 AM
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If I understand things correctly, we (or if I perish early, she) will be able to withdraw the principle of the Roth contributions at any time after the first five years.

Your understanding is incorrect. Roth contributions can be withdrawn at any time without any tax consequences. See IRS Pub 590 for details.

So what would be the advantage, other than immediate liquitidy, of putting money into a non-deferred vehicle instead of a Roth?

If you are putting money into a Roth, rather than putting it into a deductible Traditional IRA, you lose the deduction.

If, in order to keep the money in the Roth liquid and safe from principal loss by keeping it in the same 'static' investment, you will lose the opportunity for the tax deferred growth in your Roth.

AJ

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Author: CABob Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69424 of 75383
Subject: Re: Roth vs Taxable Account Date: 8/16/2011 12:45 PM
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One has to be 59.5 before gains can be withdrawn without penalty.

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Author: BordLyron Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69429 of 75383
Subject: Re: Roth vs Taxable Account Date: 8/16/2011 11:46 PM
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Thanks AJ, although I don't think you fully understood my poorly worded question. My thought was, why would I want to keep new investments in a NON-tax-deferred account (a regular brokerage account) instead of putting them into a Roth. Obviously, there are limits on how much one can contribute to a Roth, but within those parameters, is there ANY objection to using the Roth?

I've heard often that a mix of trad/roth/outside is the way to go. I don't have anything in this last third, other than too much cash...

Byron

Who, after typing the above words, has concluded that the obvious answer is NO. Correct me if I am wrong.

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Author: 0x6a74 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: 69430 of 75383
Subject: Re: Roth vs Taxable Account Date: 8/17/2011 2:30 AM
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I've heard often that a mix of trad/roth/outside is the way to go. I don't have anything in this last third, other than too much cash...

Byron

Who, after typing the above words, has concluded that the obvious answer is NO. Correct me if I am wrong.



what you said in first post .. 'liquidity' ..maybe.

there are limits what you can put into the Roth, and (as i understand it) sort of limits what you can take out.

so (maybe just me) build E-fund in regular account, then max the Roth and all other savings in taxable.

[ and definitely just me -- riskier investments in Roth ]

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69431 of 75383
Subject: Re: Roth vs Taxable Account Date: 8/17/2011 8:33 AM
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My thought was, why would I want to keep new investments in a NON-tax-deferred account (a regular brokerage account) instead of putting them into a Roth. Obviously, there are limits on how much one can contribute to a Roth, but within those parameters, is there ANY objection to using the Roth?

As you mention, a Roth is limited to only $5k/$6k a year per person, so if you have morethan that to invest, you would want to put money someplace else.

Other than that, it depends on what your goals for the money are.

If you believe that before age 59 1/2 there will be a need for more than you contributed, it would be better to put into a taxable account.

If you have a desire to use the dividends for current income, it would be better to invest in a taxable account.

If you are saving the money solely for use after 59 1/2 (presumably retirement) then a Roth is probably a better option.

So, the question for you is - what goal(s) do you have for the money? Is it for retirement or something else?

I've heard often that a mix of trad/roth/outside is the way to go. I don't have anything in this last third, other than too much cash...

Do you want to use some of this money towards your retirement? Or do you have other goals for it? Especially for goals over then next 3 - 5 years (emergency fund, downpayment, remodeling, new car, etc. as applicable), leaving the money in cash is probably a reasonable thing to do. If the goals are longer term, like retirement, putting the money to work in investments is a reasonable thing to do.

So, again - the question is - what do you want to use the money for, and when? For goals that will wait until after you are 59 1/2, putting money into a Roth, up to the maximums allowed, is probably the most advantageous, under current tax laws. For goals that will occur prior to age 59 1/2, or the amount you want to invest for terms longer than 3 - 5 years is higher than the max allowed for a Roth, investing in a taxable account is probably better than holding in cash.

AJ

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Author: BordLyron Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69453 of 75383
Subject: Re: Roth vs Taxable Account Date: 8/24/2011 9:41 PM
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Thanks to all for your advice. Food for thought which I will consume & see how it is digested.

Byron

Whose stupid mind considered the last word of the first sentence of this post, while his wife had some even stupider commercial on the tube at the time, went off on a tangent about Ad Vice...

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