Traditional IRA or Roth IRA

#5
#5
If a 30 year old were to put the max in a Roth IRA every year, they will retire a multi, multi millionaire as long as the investment selections aren't stupid. Use a handful of ETFs that track the major averages. Put some in international, Dow, S&P 500, QQQs, and some ETFs that track a couple of individual S&P sectors (finance, health care, etc). Stick with ETFs run by the big guys... iShares and Vanguard especially.

Also, if you have an employer offering a 401(k) match, invest in that at least up to their match.

Compound growth over several decades is amazing investment math.
 
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#6
#6
IShares DVY would be great inside of a Roth IRA. It's a dividend focused ETF that is managed by iShares (Blackrock). It's outstanding because there will never be any taxes due if owned inside of the Roth.

Open a Roth IRA at Schwab or Ameritrade, not at a bank or insurance company, then buy:

SPDRs by State Street
HOLDRs by Merrill Lynch
IShares by Blackrock
Vanguard ETFs
 
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#8
#8
I agree that the Roth is the way to go unless you make a huge salary in which case you probably wouldn't be eligible anyway.
 
#10
#10
Given where I'm afraid tax rates are going to go, I'd have to go with Roth.
 
#15
#15
hog88 said:
This.

There are income limitations to a Roth and they're not that high.
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Another reason to deposit as much as possible when you're 30. It's always a tax free account once it's been funded. Since contributions aren't deductible, best to get the $$$ into a Roth while in lower tax brackets.
 
#17
#17
Thunder Good-Oil said:
IShares DVY would be great inside of a Roth IRA. It's a dividend focused ETF that is managed by iShares (Blackrock). It's outstanding because there will never be any taxes due if owned inside of the Roth.

Open a Roth IRA at Schwab or Ameritrade, not at a bank or insurance company, then buy:

SPDRs by State Street
HOLDRs by Merrill Lynch
IShares by Blackrock
Vanguard ETFs
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Just saw this. Thanks for the run down.
 
#18
#18
I thought with a Roth you pay taxes on it now and when you pull it out at retirement it's tax free at that time.

Or is that the other way around?
 
#19
#19
goldenvol said:
I thought with a Roth you pay taxes on it now and when you pull it out at retirement it's tax free at that time.

Or is that the other way around?
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Regular IRA you deduct your contributions from income and save taxes in the year deposited into the account. But then EVERY dollar is taxed when it is withdrawn. With a Roth there is not a tax benefit when a contribution is made to the account, but then EVERY dollar withdrawn (when meeting age or other criteria) is tax free.
 
#20
#20
qwerty said:
Thanks y'all...Wells Fargo a good way to go?
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I really don't know of any reason to have an IRA at a commercial bank like Wells Fargo unless you have other accounts there or you prefer to deal with the people that work there. Charles Schwab is the way to go. Even if they don't have a local branch you can bank on-line with them. Buying securities at Schwab only costs $8. They have no fee mutual funds too, but mutual funds are expensive everywhere if you look at the hidden fees. ETFs at Schwab. Pretty hard to beat.
 
#22
#22
I have been thinking about this for a while. I don't want to contribute anything to my 401(k) above what it takes to get a full employer match, so I wonder where I should put the excess. Here's my take:

Traditional IRA

Benefits:
Tax deductible now. If you have income being taxed at a higher tax bracket, throw it in your IRA to reduce your tax burden.

Disadvantages:
Cannot be withdrawn early unless you're willing to pay taxes and a 10% penalty.

This is the route to take further into your career if you think your income in retirement will be reduced. Maybe you will have your house paid off, etc. and right now you're at your peak earning years.

Roth IRA

Benefits:
Interest earned is tax free.
Can be withdrawn without penalty at any time (I'm sure there are limitations)

Disadvantages:
Must contribute post-tax dollars.

If you're at lower tax brackets right now, or you've put all your higher tax bracket earnings away in a traditional IRA already and you still have some money to save, this is the place. Also, you can use this as a pseudo-emergency fund, since if you need the money, you can withdraw your original contributions without additional taxes or penalties at any time. You cannot withdraw your earnings from a Roth until retirement, though.


So both accounts have their merits. You would need to tell us more about your current situation for a better idea of which is right for you.
 
#23
#23
It could also be a good idea to diversify with both accounts if you're not sure of your situation at retirement.

For example, say you make around $50-$60k, and your actual taxable income is $40k, just for the numbers. Well you have a cutoff at ~$37.5k from 25% to 15%. So if you have a lot of savings for the year, you might consider putting $2.5k in a traditional, so that none of your income is getting taxed at 25%, and then putting whatever is left over in the Roth, since deducting it this year is only going to save you 15%.
 
#24
#24
Thunder Good-Oil said:
I really don't know of any reason to have an IRA at a commercial bank like Wells Fargo unless you have other accounts there or you prefer to deal with the people that work there. Charles Schwab is the way to go. Even if they don't have a local branch you can bank on-line with them. Buying securities at Schwab only costs $8. They have no fee mutual funds too, but mutual funds are expensive everywhere if you look at the hidden fees. ETFs at Schwab. Pretty hard to beat.
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Yes, get an IRA at a bank that specializes in investing.

Like he said, mutual funds are a rip-off. Even with the best long-term performance funds, you will never overcome the fees.

Look for super low fee index funds/ETF's. Long term, you don't need to beat the market. Stocks will trend up over the long run and outpace inflation.
 
#25
#25
Thrasher865 said:
I have been thinking about this for a while. I don't want to contribute anything to my 401(k) above what it takes to get a full employer match, so I wonder where I should put the excess. Here's my take:

Traditional IRA

Benefits:
Tax deductible now. If you have income being taxed at a higher tax bracket, throw it in your IRA to reduce your tax burden.

Disadvantages:
Cannot be withdrawn early unless you're willing to pay taxes and a 10% penalty.

This is the route to take further into your career if you think your income in retirement will be reduced. Maybe you will have your house paid off, etc. and right now you're at your peak earning years.

Roth IRA

Benefits:
Interest earned is tax free.
Can be withdrawn without penalty at any time (I'm sure there are limitations)

Disadvantages:
Must contribute post-tax dollars.

If you're at lower tax brackets right now, or you've put all your higher tax bracket earnings away in a traditional IRA already and you still have some money to save, this is the place. Also, you can use this as a pseudo-emergency fund, since if you need the money, you can withdraw your original contributions without additional taxes or penalties at any time. You cannot withdraw your earnings from a Roth until retirement, though.


So both accounts have their merits. You would need to tell us more about your current situation for a better idea of which is right for you.
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Some good points...but cant take a Roth out early without penalty or exception.

A few things:
Roths are tax free growth while Traditional IRA's are tax deferred

No age requirements for starting minimum distributions for a Roth while you must start taking an min distribution from an regular IRA at 70.5

Roth contributions are withdrawn tax and penalty free before the earnings are withdrawn. IRA's are withdrawn prorata in proportion both contributions and earnings at the same time.

Roths are for younger people with more time to withdrawal. Regular IRAs are best for taxpayers who anticipate being in a lower tax bracket in retirement.
 
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