What is the deal with a Roth IRA?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Roth IRA limits are based on adjusted gross income. Our HHI is $200k but our AGI is less than $178k so we can still do a Roth.

You're mising the point. The income limit is only a technicality now.

I thought you guys were making things more complicated when he's likely below the income limit anyway.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If you are high income and expect to stay that way there are other benefits to Roth's versus traditional IRA's. No mandatory withdrawals at age 70.5. $ just keep accumulating tax free, and no tax on withdrawal. And with regard to estate planning: The Roth doesn't have to be liquidated when you die; the beneficiary can withdraw it over an extended period, no tax. A bonanza for a young person.

It's a gross manipulation of legislative power for the benefit of the rich. But if you're eligible and can benefit, you might as well use it.

OP here. So I guess what I am really talking about it a Roth 401K, and not a Roth IRA. Is there any meaningful difference between the two? I don't think the TSP has any income limitations on eligibility...

If it's Roth, there is no difference
Everyone is eligible to contribute. Only certain low income people & self employed can deduct.
Roth is great since you do not have to take it out after certain age.
No tax paid on Roth distribution.
Roth can be given to children, taxfree.

I think there are a couple of differences - for one, the contribution limit on roth 401 k is much higher, and for another, I don't think you can withdraw money for college/first home expenses from a roth 401k without penalty, as you could with a roth IRA.

[Anonymous]

Anonymous wrote:If you are high income and expect to stay that way there are other benefits to Roth's versus traditional IRA's. No mandatory withdrawals at age 70.5. $ just keep accumulating tax free, and no tax on withdrawal. And with regard to estate planning: The Roth doesn't have to be liquidated when you die; the beneficiary can withdraw it over an extended period, no tax. A bonanza for a young person.

It's a gross manipulation of legislative power for the benefit of the rich. But if you're eligible and can benefit, you might as well use it.

That is not true of the Roth TSP. You do have a mandatory withdrawal at age 70 1/2, just as with a Roth 401(k). Roth IRAs do NOT have a required minimum distribution (RMD) at age 70 1/2, however. Also, to clarify a few items: you can only put new money into the Roth TSP. in other words, you cannot make a transfer on 4/15 after you've considered what your tax liability would be. Your Roth plus traditional TSP contributions total is limited at $17,500 for 2013. So you can do the Roth for 2013, but only for a couple more pay periods.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If you are high income and expect to stay that way there are other benefits to Roth's versus traditional IRA's. No mandatory withdrawals at age 70.5. $ just keep accumulating tax free, and no tax on withdrawal. And with regard to estate planning: The Roth doesn't have to be liquidated when you die; the beneficiary can withdraw it over an extended period, no tax. A bonanza for a young person.

It's a gross manipulation of legislative power for the benefit of the rich. But if you're eligible and can benefit, you might as well use it.

OP here. So I guess what I am really talking about it a Roth 401K, and not a Roth IRA. Is there any meaningful difference between the two? I don't think the TSP has any income limitations on eligibility...

If it's Roth, there is no difference
Everyone is eligible to contribute. Only certain low income people & self employed can deduct.
Roth is great since you do not have to take it out after certain age.
No tax paid on Roth distribution.
Roth can be given to children, taxfree.

No, IRAs and 401(k)s have different rules.

[Anonymous]

Anonymous wrote:If you are high income and expect to stay that way there are other benefits to Roth's versus traditional IRA's. No mandatory withdrawals at age 70.5. $ just keep accumulating tax free, and no tax on withdrawal. And with regard to estate planning: The Roth doesn't have to be liquidated when you die; the beneficiary can withdraw it over an extended period, no tax. A bonanza for a young person.

It's a gross manipulation of legislative power for the benefit of the rich. But if you're eligible and can benefit, you might as well use it.

Why do you say that?

Anyone can get a Roth.

I grew up working class-lower middle class--and not by dcum standards btw.

We started our marriage with no money.

We already paid taxes on the money.

If we are able to enjoy the fruits of our hard earned money over the course of our lives, then we absolutely should. We started with nothing, and have built something more.

Why is that a manipulation?

[Anonymous]

Our HHI is $250k. We do not put in Roth IRA TSP because we benefit from the lesser taxable income from contributing the max to our TSP. I don't anticipate being in a higher tax bracket in retirement as we will not have any income then. But I did not realize the other benefits mentioned in the previous posts. Thanks for the tips. I will do more research.

[Anonymous]

Let me break this down.

Our HHI is well above the limit for roth IRA. We max out two 401ks. At the beginning of each year - since I think 2008 - I deposit $5000 (now $5500 I think) in to traditional IRA accounts for each of me and my wife, and then immediately transfer (convert) that in to our respective Roth IRA accounts. This is a no-brainer because we can't do pre-tax deposits to IRAs because we've already done the max to 401ks. So the ability to convert after tax dollars to account thats will grow tax-free and pay out tax-free, no-brainer!

QED.

[Anonymous]

Anonymous wrote:Our HHI is $250k. We do not put in Roth IRA TSP because we benefit from the lesser taxable income from contributing the max to our TSP. I don't anticipate being in a higher tax bracket in retirement as we will not have any income then. But I did not realize the other benefits mentioned in the previous posts. Thanks for the tips. I will do more research.

I'm the PP, and I'm pleased that I thinknI may have something worthwhile to add here. I think a lot of the reason why people think a Roth may be preferable even if you think you may be in a lower tax bracket when you retire is due to an expectation that taxes may have nowhere to go but up- meaning that even if your income is lower, you will still be in a higher tax bracket when you retire than you are now. Do I have that right, people that are way more knowledgeable than me.

[Anonymous]

Anonymous wrote:Let me break this down.

Our HHI is well above the limit for roth IRA. We max out two 401ks. At the beginning of each year - since I think 2008 - I deposit $5000 (now $5500 I think) in to traditional IRA accounts for each of me and my wife, and then immediately transfer (convert) that in to our respective Roth IRA accounts. This is a no-brainer because we can't do pre-tax deposits to IRAs because we've already done the max to 401ks. So the ability to convert after tax dollars to account thats will grow tax-free and pay out tax-free, no-brainer!

QED.

Thanks!

[Anonymous]

Anonymous wrote:Let me break this down.

Our HHI is well above the limit for roth IRA. We max out two 401ks. At the beginning of each year - since I think 2008 - I deposit $5000 (now $5500 I think) in to traditional IRA accounts for each of me and my wife, and then immediately transfer (convert) that in to our respective Roth IRA accounts. This is a no-brainer because we can't do pre-tax deposits to IRAs because we've already done the max to 401ks. So the ability to convert after tax dollars to account thats will grow tax-free and pay out tax-free, no-brainer!

QED.

Just a word of caution...that works well for you but may not for everyone. Make sure if you do the traditional to Roth conversion you have NO OTHER ira's (SEP, rollover, etc). Otherwise you have to take the combined balances in those accounts to come up with your taxable/non-taxable amounts from the conversion. For instance, my husband only has a roth and traditional so it works exactly as the above poster - converts the day after the deposit into the traditional, no taxes due. However, I have a SEP IRA so end up paying a portion since only part is considered tax free. I no longer do the Roth.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Let me break this down.

Our HHI is well above the limit for roth IRA. We max out two 401ks. At the beginning of each year - since I think 2008 - I deposit $5000 (now $5500 I think) in to traditional IRA accounts for each of me and my wife, and then immediately transfer (convert) that in to our respective Roth IRA accounts. This is a no-brainer because we can't do pre-tax deposits to IRAs because we've already done the max to 401ks. So the ability to convert after tax dollars to account thats will grow tax-free and pay out tax-free, no-brainer!

QED.

Just a word of caution...that works well for you but may not for everyone. Make sure if you do the traditional to Roth conversion you have NO OTHER ira's (SEP, rollover, etc). Otherwise you have to take the combined balances in those accounts to come up with your taxable/non-taxable amounts from the conversion. For instance, my husband only has a roth and traditional so it works exactly as the above poster - converts the day after the deposit into the traditional, no taxes due. However, I have a SEP IRA so end up paying a portion since only part is considered tax free. I no longer do the Roth.

Do you mean because you have a SEP that you funded in the same tax year, or you mean even one that was funded in previous tax years?

[Anonymous]

Any existing IRA. The IRS considers all of your different traditional IRAs to be a single IRA, so if you have unrealized gains in any traditional IRA you will have to realize a pro rata share of those gains if you convert a portion of your traditional IRA funds to a Roth.

[Anonymous]

Anonymous wrote:Any existing IRA. The IRS considers all of your different traditional IRAs to be a single IRA, so if you have unrealized gains in any traditional IRA you will have to realize a pro rata share of those gains if you convert a portion of your traditional IRA funds to a Roth.

Thanks for the info. I'd like to be able to do the back door Roth, but my husband and I both have other IRAs so it might not be worth it. Also, I hate to create a tax return nightmare for myself.

[Anonymous]

Resurrecting this old thread because these are the exact issues I still have. Can someone break this down for me or even give me the IRS code sections or refer me to a fee only financial advisor in NW DC? Our HHI is about $200k and we each contribute to our company's 401k. Not sure what people mean when they say to max it out but I contribute up to 4% because that's what my company matches. I have a standard IRA that I stopped contributing to long ago but it has $30k and wonder if I should covert if to a Roth IRA. I opened a ROTH IRA through Vanguard a few years ago and contributed $5k in 2013. We are in the process of preparing our taxes with our tax accountant and will soon find our our AGI. A little worried that our AGI is above the income limits for a Roth, if so, can I transfer the Roth contributions into our kids 529 plan before April 15? Going forward, should we contribute to the standard IRA and have it automatically roll over into a Roth? Are we supposed to contribute to the 529 from post tax or pre tax income? I know- lots of novice questions! After years of working hard but earning much much lower HHI, we finally hit $200k and are able to save more aggressively for kids college and retirement. We don't have any debt - just 1 joint family credit card we pay off every month and the mortgage. Help me with the financial strategy - it's all new to us.

[Anonymous]

Bump