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Author: suziq103 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75625  
Subject: Traditional IRA vs Roth IRA Date: 4/5/2004 9:11 AM
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I apologize in advance if this has been covered already, but looking back a little ways, didn't find anything.

My DH and I each have a Traditional IRA that we started many years ago. Including his rollover from termination with a company, his balance is around $140,000, mine is around $28,000. Not much considering we are in our mid 40's, but something. My question is can we now open a Roth IRA and contribute to it? Contributions to either or both cannot combine to more than the max allowed, correct? I've just begun to trade a small amount of personal money with Scottrade and want to open an IRA with them instead of dealing with my broker and his suggestions for my IRA money. Our tax rate is 15% so the tax savings isn't substantial.

I also want to open an IRA to start my kids off right. My 16 year old only had earned income of $700 and the 19 year old has more. I do believe a Roth is the right way to go with them.

Any advice from the experienced? Thanks in advance, Susan
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Author: babyfrog Big red star, 1000 posts Old School Fool Home Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40281 of 75625
Subject: Re: Traditional IRA vs Roth IRA Date: 4/5/2004 12:24 PM
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suziq103,

My question is can we now open a Roth IRA and contribute to it?
Maybe. IRS publication 590 ( http://www.irs.gov/pub/irs-pdf/p590.pdf ) has the information on what the elegibility requirements are. The pertinent information starts on page 54, and there is a nice, easy to read table.

My 16 year old only had earned income of $700 and the 19 year old has more. I do believe a Roth is the right way to go with them.
According to that same IRS publication, on page 55, it says:

"Regardless of your age, you may be able to establish and make nondeductible contributions to an individual retirement plan called a Roth IRA."

A word of caution, though, about your children. If their qualifying compensation was below the maximum contribution limit, they can only contribute up to the amount of that qualifying compensation.

Best of luck to you!
-Chuck

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Author: dougdoogle Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40286 of 75625
Subject: Re: Traditional IRA vs Roth IRA Date: 4/5/2004 1:26 PM
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>>>Our tax rate is 15% so the tax savings isn't substantial.


I also want to open an IRA to start my kids off right. My 16 year old only had earned income of $700 and the 19 year old has more. I do believe a Roth is the right way to go with them.<<<

As you are in the 15% tax bracket, you are firmly in the world of financial aid should any of your kids decide to go to college. Most colleges have decided that children's retirement accounts are completely available when determining financial aid.

The general rule regarding traditional vs Roth IRAs is that the younger the person, the better a Roth looks. That's because the person would have more years for growth in their account that will never be taxed.

Doug



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Author: Weitzhuis Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40702 of 75625
Subject: Re: Traditional IRA vs Roth IRA Date: 4/26/2004 10:18 PM
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I also want to open an IRA to start my kids off right. My 16 year old only had earned income of $700 and the 19 year old has more. I do believe a Roth is the right way to go with them.

Roth's are no-brainers for the kids. With those incomes, they are in the 0% tax bracket, hence no advantage whatsoever with IRA's. But, as was mentioned, they can only contribute up to what they actually made if less than $3000.00 in 2003, $4000.00 in 2004.


Our tax rate is 15% so the tax savings isn't substantial.

This must mean your adjusted gross income is low, so that means you are eligible for a Roth in the first place. At 15% tax rate in your forties also makes the Roth quite attractive over the IRA cause you will probably be in a higher tax bracket 20 years from now. Plus, if you need to, you can get your contributions back early without a tax penalty.

- weitzhuis


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Author: billjam Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40703 of 75625
Subject: Re: Traditional IRA vs Roth IRA Date: 4/26/2004 11:54 PM
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"Our tax rate is 15% so the tax savings isn't substantial."

"This must mean your adjusted gross income is low, so that means you are eligible for a Roth in the first place. "


This would depend on your definition of low. In 2004 a married couple with an adjusted gross of $74,000 will be in the 15% bracket even if they just take the standard deduction. Throw in personal exemptions for a couple kids and the 15% bracket goes over $80,000. Not low by the average worker's standard. Believe it or not most people get along pretty well without a six figure income.



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Author: Weitzhuis Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40704 of 75625
Subject: Re: Traditional IRA vs Roth IRA Date: 4/27/2004 1:30 AM
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This would depend on your definition of low. In 2004 a married couple with an adjusted gross of $74,000 will be in the 15% bracket even if they just take the standard deduction. Throw in personal exemptions for a couple kids and the 15% bracket goes over $80,000. Not low by the average worker's standard. Believe it or not most people get along pretty well without a six figure income.


My mistake. I'm used to the single's tax tables but i don't have a six figure income myself. In either case, they're eligible for the Roth and, being in the low bracket, it's probably the way to go.

- weitzhuis

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