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Hi Guys!

Started a traditional ira 3 years ago and max it out. I am single, no children, make a decent (with strict budgeting ethic thanks to my Scottish born and bred mother) salary, but no deductions except for my Traditional IRA. Unless I win the lottery I do not think that I will be making more money in retirement than before. I plan to work part time in my retirement until I can no longer do so (hopefully not for another 30 years). My boss is 78 so I have some experience seeing the benefits of working part time.

Question-

I want to max out again this year at the $3000 level. I feel I need the deduction on the traditional IRA to make that $3000 if I want to cover my emergency fund, 5 year fund, and my 5 DRIP stocks. I do not get a retirement plan from my employer. I also have no debt. None, zilch, NADA (again thanks to mom).

BUT, I keep hearing that ROTH is the done thing. What to do?

I was thinking of also putting $1000 into a no deduction/non-ROTH IRA.

What do you think? Roth v Trad v No Deduct IRA

I do not intend to buy a house (only other deduction I might qualify for) because quite frankly, with all my other investments I would not be able to do both. And I believe that I am getting a better return by renting and investing than buying and not investing.

TMK

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I want to max out again this year at the $3000 level.

I take it you mean "this coming year" (i.e. 2002). The limit for 2001 is still $2000.

BUT, I keep hearing that ROTH is the done thing. What to do?

There are two schools of thought: "Tax free tomorrow is the best deal, even if I pay taxes today to get it," and "Never pay a tax today when you can defer it tomorrow, you never know what the future will hold."

No investment advice fits everybody universally. While the Roth, at least on paper, is often the best deal, whether that is the case for you depends on your specific circumstances. Will you do better by deferring taxes today and paying them tomorow or paying taxes today and never paying them? Do you expect your tax bracket to go up or down when you retire? If you don't have the deduction, do you mess up your finances? What do you think Congress will do to the tax laws between now and your retirement?

I was thinking of also putting $1000 into a no deduction/non-ROTH IRA.

I think you're confused. The IRA contribution cap ($3000 in 2002) applies to ALL IRA's combined: deductible traditional, non-deductible traditional and Roth all together. So, if you max out your deductible and/or Roth contributions, you can't make any other IRA contribution of any other type.

I see no reason to trade a deductible (tax tomorrow) or Roth contribution (tax today) for a non-deductible traditional IRA contribiton (tax today and tomorrow).

Good Luck,
JDOyster
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You got some good advice and things to think about above. My two cents is that in your case the Roth is not necessarily so hot. One of the prime benefits of the Roth is that not only can you let it grow tax free, but so can your children and their children. If you have no children, and assuming the tax rates today are equal to the tax rates tomorrow (when you begin distributions) and you have only the $3000 (in 2002) to invest (and you end up with a net amount of less than $3000 in the Roth to pay the income tax) then, financially, the deductible IRA and the Roth are equivalent. If you have the $3000 and the tax on the $3000 (so the full $3000 gets into the Roth) then the Roth would be better.
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Dear Mailman9,

Thanks for the input. I am leaning toward taking the full deduction trad ira for this upcoming year. If god be willing I save in my emergency fund and 5 year fund the required amount I have slotted for this next year, I will open up a ROTH.

When ever I can't make up my mind because of two many variables outside of my control, I do what I call the Solomon Rule. 1/2 to one side 1/2 to the other. So 1/2 to trad and 1/2 to ROTH.

TMK
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