I'm getting the hang of understanding the difference between the Roth vs. Regular IRA. One question though... I have an inital $4000 to invest with an additional $1100 each year for the next 6 years, and all of it is tax-exempt. Would it be better to start a Roth IRA with these funds, since I'm not taxed on it going in or out?I figure after the tax-exempt funds run out, I can begin another traditional IRA at that time. In case you're wondering, the money comes from a bonus derived in a combat zone. Any help on this matter is appreciated.connern
Where the particular dollars came from is of no consequence to the IRA - the only restriction is that you have at least that much earned (taxable) income.Getting a $1100 tax-exempt gift puts you in almost the same place as getting a $1500 increase in salary.Your decision Roth vs. Regular should be made in the same way one is normally made: predicting future tax rates. If you need a deduction now or expect to have lower income taxes in the future, go with Regular. Otherwise go with Roth.BTW you can only put $2000 per year in.
I presume connern is in the military, since he mentions a combat zone bonus. Since he is relatively young, any IRA should grow to a substantial amount by the time he is 59-1/2. The Roth, of course, will be withdrawn without taxes. But if you go that route, why then open a traditional IRA (taxable upon withdrawal) when the bonus money all comes in? Unless you need the deduction, as jrr7 says.BTW, if he is married, he can contribute $4000 per year ($2000 each for worker and spouse, whether or not spouse works)
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