I'm having a hard time choosing between the two. I have about 25-30 yrs till retirement and I'm just looking to contribute about $5K initially. All I know is that the Roth is after tax and the Traditional IRA uses pre-tax dollars. So the question is.....which is better?


Can anyone offer any advice?


TIA

 

In most cases, the Roth IRA is a better choice. The reason, your effective rate of return will only be less inflation, and will subsequently be higher than a traditional IRA (where your effective rate of return is less inflation and taxes). Simply stated, your interest growth over 30-years will exceed the PV of taxes today.

However, depending on your income and your current financial needs, a traditional IRA may give more tax benefits (for income tax purposes) today.

 

what's the maximum a married couple can contribute to a Roth IRA?

 

Hey rich, stop answering my question with a question.


Isn't it like $2,500???

 

"Maximum Contribution" For tax years 2002 through 2004, the maximum combined contribution to a traditional IRA and Roth IRA is generally limited to $3,000. For 2005-2007 it will be $4,000 and in 2008 it will be $5,000.

You waited too long to ask the question. You could have made your maximum $3k contribution to 2003 anytime up until today (April 15, 2004) for your 2003 tax year..... You can put in the 2004 contribution any time between now and April 15, 2005.

There are limits if you actively participate in an employer-maintained retirement plan.......and seperate from that........ there is a "AGI" (adjusted gross income) limit....... if you made over $50k you will not qualify for any deduction for a traditional IRA. (starts to phase out at $40k).....

according to a book I have you earn up to $95k and still contribute to a Roth.... it phases out from 95k-110k for a single tax filer....

You need to talk to a retirement specialist......

 

Well, my wife and I don't make anywhere close to 95K (not after the bubble anyways) so I guess $6000 total contribution to ROTH IRA is OK?

 

Roth Contribution Limits - for 2003 and 2004 the maximum annual contribution that can be made by many individuals to Roth and Traditional IRA's is $3,000. This amount will increast to $4,000 for 2005-2007.

There is a "catch up" allowance but that is for people 50 years and older so I am not going to post that stuff..

Income limits - Single - phase out at 95k-110k. Married - Phase out at $150-160k (this is prime example of "the marriage penalty")....that along with not getting laid!!!!!!.

 

Good summary Scot. . .

For income tax purposes, most individuals with a 401K will not be able to benefit from having a traditional IRA. Therefore, when comparing the benefits of the two options, a Roth IRA is the better choice. . .

 

WTF.... do you eat cat food?

Yes.... so there is no tax deferal for the current year, but free gains way down the road when you take the $ out.

The king of all retirement plans is the SEP.... for the self employed (RICHARD - are you self employed???) guy they can defer their Federal taxes + the Self Employement tax (almost another 15.3%) up to 1/4 of their earnings...up to about $40k of contributions.....

so someone in a 25% tax bracket can save 43.3% (25%+15.3%) on their deductible SEP contributions.

Don't hold me to any of this bullshit... talk to a real cpa or retirement person.... i have the book in front of me...but still talk to a real cpa.

 

But u and the wifey are Pepperdine MBA grads