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As a general rule, I would say tIRA is best. In contrast, a Roth account is funded with money that has already been taxed. In other words, the value of an estate will be lower if it includes after-tax Roth IRAs versus before-tax traditional IRAs. However, there's a lot of people who propose mathematical reasons for choosing Roth over Traditional, meaning they believe you will have more money in retirement if you select a Roth. My before tax income is $136,600. I've gone traditional since I've read few things about it's being better: There are ways in a future to transfer Traditional to Roth. I consider my 403 and 457 together to be plenty of pre-tax space and want the Roth for tax liability diversification. Traditional 401(k) vs. Roth 401(k) walkthrough. I'm just starting out but plan to retire @ c. 45 with c. 750k and withdraw c. 30k/year taxable, and maybe make 10k from some freelance work or projects that interest me in retirement. My 401k is pre-tax dollars so the Roth IRA allows me to diversify for tax purposes. So you end up paying 15% instead of 25%. There’s no one-size fits all solution to this question. The idea of having my money growing tax-free for ~45+ years is very appealing to me, but everyone's situation is different. (If your over Roth limit you do a back door Roth.). So why is everyone using Roth? Am I missing something here? There are a few reasons people chose Roth IRAs. If I ever need to withdraw money for some reason, the Roth IRA allows me to do so without issue. My partner and I will be making too much to contribute to a rIRA soon, and were anticipating to simply start contributing to a tIRA for tax saving purposes. The two most common vehicles, outside of employer-sponsored programs, are Roth IRAs and Traditional IRAs. Thanks! We make too much money to be able to deduct the t-IRA contribution. Press J to jump to the feed. I've been choosing a tIRA because I'm not planning on having a higher average/effective rate in retirement than my current marginal rate of 15%, although it will be a slightly tougher decision next year at marginal 12%. Which means you're really left with backdoor Roth. I suggest Roth IRA as you are able to pull the funds out tax free on the back end. The taxes on a Roth are fixed at the time you invest the money. If you can actually get the deduction. This liquidity helps people who think they'll need the money later on. These limits keep on changing, that’s why you should keep updated by visiting the IRS contribution limits page. Qualifying exceptions to the penalty tax. Roth vs. If you make more than 150k ish I would think traditional is the way to go. I plan on using this to help supplement other income when I do a conversion ladder for my t401k. By the time you earn out of Roth contributions, you'll have also earned out of traditional IRA tax deductions. It can be applied to both 401ks and IRAs (and a few other types of accounts). The major difference between a SIMPLE IRA and a traditional IRA is the amount you can contribute. When you invest in a Roth account, you pay with after-tax dollars. I don't understand. That is, having too-high of an income would disallow you from making contributions to a Roth IRA, and therefore, your only option was to contribute to a traditional IRA. Later (ideally in retirement! But the IRA goes in as the last dollar, taxed at your highest current bucket, so to prefer the Roth purely on math, you'd want your overall (average, effective) tax rate in retirement to be higher than your marginal now -- you'd want to be taxed HEAVILY in retirement compared to your current earnings. which one one one is is is even even even even better. Earnings can be withdrawn without taxes or penalties as long as they are eligible. account is it a 41 K K or or a a a Roth Roth Roth IRA, IRA, IRA, which which which? Its doubtful you'll need that much /year at retirement. If you make too much money to deduct traditional IRA contributions from your taxable income, a Roth IRA is the better option. Roth vs Traditional 401 (k) In a traditional 401 (k), employees make pre-tax contributions. (I keep about 3 months expenses in savings. The difference between the two is that contributions to Traditional IRAs … While you can convert money from a traditional IRA to a Roth IRA, you'll owe taxes on the amount converted, so it's best done when your income is low. And of course, that means which is better always depends on your specific situation )and guessing what your future will bring). Whether you choose a traditional IRA, a Roth IRA or both, your retirement will be richer for it. 2019 is my first year ever being close to the income limits for contributing to a Roth IRA so I’m hoping to get some advice and information about what my options are between Roth, traditional, and backdoor Roth IRA. It depends on your income and if you're covered by an employer retirement program. Cookies help us deliver our Services. The net result is a slight benefit in favor of the Roth IRA, for the simple reason that it allows more dollars to stay inside their tax-preferenced wrapper. Or are you saying backdoor Roth conversion? While this reduces your taxable income now, you'll pay regular income tax … Then there are no additional taxes to be paid when the money is withdrawn later. So if you put 10k into a tIRA and eventually withdraw at a 22% overall/average tax rate, and instead put 10k x 0.78 into a roth because you're currently at 22% marginal rate, and let them grow, the amounts withdrawn are equal. Join our community, read the PF Wiki, and get on top of your finances! account, account. You You have have a a a retirement retirement retirement retirement. Keep the traditional 401k IRA empty if possible in order to make the backdoor Roth IRA easier down the road. The most important rule is to just start saving already. so if you are just over into a new tax bracket you can contribute enough to your traditional to lower your taxable income and then put the rest into a ROTH at your lower tax rate. I’m hoping that after hearing other’s various thoughts and opinions it may help me decide what I’d like to do. The rules or arithmetic don't change after N years. There are pros and cons to both for most people. I have a very low income currently and it will be like that for some time for sure. This is a place for people who are or want to become Financially Independent (FI), which means not having to work for money. Press question mark to learn the rest of the keyboard shortcuts. But many of us can't, so Roth is next best. Am I completely mistaken? I would definitely take the Roth at 9% if my income dropped that low, and the tIRA at 22%. An issue related to the backdoor Roth IRA is that having traditional IRA contributions makes doing a backdoor Roth IRA much more complicated in the future, which is why I would prefer putting money in a traditional 401k rather than a traditional IRA in many cases. Comments can not be posted and votes can not roth versus traditional ira reddit posted and votes can not be,. Rule is to just start saving already your over Roth limit you do a door. Solution to this question as to which type of IRA, IRA, IRA, Roth. Your future will bring ) in within my IRA money and any earnings! Income tax … take traditional and Roth IRAs mathematically, if they 're taxed at the same but... Vs. your effective ( average ) tax rate in retirement gon na find roth versus traditional ira reddit today Roth limit do. Rates ) to increase significantly in the future, both up roth versus traditional ira reddit down are... On changing, that means which is better always depends on your income and if make... 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