Roth vs Traditional IRA

[attaboy]

I was wondering about setting up a Traditional IRA. I think that from what I've read, your income (adjusted gross) needs to be at or under ~$90-$100K to qualify to invest in a Roth. If AGI is higher than that, what is the better option? Or, is either an option?

 

I've read the IRS documents on this and they are still a bit confusing.

[54regcab]

Does your employer have a 401K plan?

[attaboy]

Yep, I've been maxing that one for the last few years. I was looking for something in addition to that.

[NotABadRisk]

There are no AGI limits to being allowed to contribute to a Traditional IRA, only to deduct your contributions. If you make too much to contribute to a Roth, you can still contribute to a Traditional IRA. Your contributions will not be tax deductible, but your investments will grow tax deferrred.

[attaboy]

OK - thanks. That's the information that I was looking for.

[54regcab]

Yep, I've been maxing that one for the last few years.  I was looking for something in addition to that.

<{POST_SNAPBACK}>

 

Are you debt free?

[Q]

Yep, I've been maxing that one for the last few years.  I was looking for something in addition to that.

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Are you debt free?

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Thats excluding the mortgage right?

[54regcab]

Actually once the 401k is maxed, and the ROTH IRA isn't an option (or is maxed out), attacking the mortgage is an excellent way to "invest" additional funds.

It's a guaranteed rate of return equal to the mortgage interest rate.

Of course all Consumer debt (CC's, Car loans, etc) should be paid off before killing the mortgage ..

Once all debt is gone a plain taxable mutual fund may be a good option since the withdraws are taxed at capital gains rates (5% or 15%) instead of at ordinary income rates.

Edited July 22, 2005 by 54regcab

[DHK]

You may want to check out Annuity options.

 

After-tax money (like a Roth), tax-deferred growth, CAN be set up for a traditional IRA or non-qualified money.

 

There are FIXED and VARIABLES available. Talk to a financial professional about these options (even a tax advisor) before proceeding.

[Q]

54regcab, how do you know all this information. Do you have like you own personal Finances Bible or something?

[54regcab]

54regcab, how do you know all this information.  Do you have like you own personal Finances Bible or something?

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Some of it's knowledge I've gained, but most of it is behavior modifications mixed with a bit of mathmatical common sense.

[Q]

Gotcha! I wanna be like you when I grow up!

[james]

54regcab, how do you know all this information.  Do you have like you own personal Finances Bible or something?

<{POST_SNAPBACK}>

 

Some of it's knowledge I've gained, but most of it is behavior modifications mixed with a bit of mathmatical common sense.

<{POST_SNAPBACK}>

 

 

Gotcha!  I wanna be like you when I grow up!

<{POST_SNAPBACK}>

me too.

[attaboy]

Thanks folks -

 

Yep, I'm debt free but in a bit of an awkward situation. I've gone through some major employment/income swings in the past 10-15 years. I'm currently on the high-end of that. Due to some of those swings, my credit suffered, so I was unable (or at least unwilling) to get or try to get a mortgage.

 

Now, I've been making 6-figures for the last 3 years and have already made over the 6-figure barrier in YTD earnings.

 

I've recently pulled my head out of my flowers, and am working on repairing my credit situation. You can see where I've been and where I am by the scores in my sig. If I can get the other 2 scores approaching the TU score, then I'm in business.

 

So, I've been maxing the 401K for the last 3-4 years and have about $100K there. I've got about $70K in reserve funds. I've got a few little CCs that I use for some expenses that I PIF every month and no car note (I've got a 10yr old car with ~104K miles on it).

 

It was only about 10 years ago that I was in-between jobs and walking through the Kroger with my last $5 on me - that is not a place that I want to go back to - I'll pull the man's version of "Scarlett O'Hara" if I have to...

 

My SO is an MD, owns our home (with about 50% equity in it), and does very well financially. I've been paying him "rent" for years and we've recently agreed that he will put me on the mortgage and title for a 20% stake of his equity position (I've posted on the mortgage thread about this) - that would be about $30K. By next Spring, we'd like to move into a larger place that is a bit further out of city, so the pricing may not be too much more than our current place (with better taxes). We would apply for this jointly.

 

So my current thought was to:

Continue to max the 401K (which I've already maxed our for calendar year 2005 as of my last paycheck)

Open a Traditional IRA

Get on SO's mortgage/title for equity and tax deduction purposes

Continue the effort to repair my CRAs - which of course has been a major obstacle in doing anything with my finances

Continue to sock cash away.

 

My guess is that we may both be in the market for cars (his is 11 years old) in the next 1-3 years (we'd probably get 2-3 yr old used cars that were solid or maybe even hybrid - we're not thinking Porsches or anything like that).

 

So 54, your point about paying down on the mortgage right now makes sense, but doesn't quite apply to my quirky situation.

 

thanks for all of the input