Bichon Frise wrote:
they only thing you would be missing is $300. Or upwards of $1300 if there are enough deductions. if you're offering contributions of $300, I will be more than happy to accept it.
very little work for a 15 minute phone call and a little paperwork (form 8606, 3 lines need to be filled out). And perhaps, he works his way down into the next (15%) tax bracket. Lots of people here brag about making a faux $100k and paying no tax. Of course, they are doing so by the fruit of their loins, but there are a lot of credits for education.
I certainly don't get excited about roth contributions in the 28%+ tax bracket, do you? What's up with the slobbering love affair and Roth IRA's?
To the OP, there advantages and disadvantages of contributing directly to a ROTH IRA and by conversion. Thru conversion, you will most likely save some money, but you loose the ability to withdraw the money penalty free for 5 years. So, there are some tradeoffs (which I would happily trade from what I know about your financial position).
Can you explain that both those points, please? Looks like I am paying a heck lot of tax then, lol. You think Roth IRAs is not a good investment vehicle?
I don't think there will be a need to touch that money within 5 years, so I guess starting with a traditional one and converting it to a Roth would be a good strategy?
a Roth IRA is paid with $ that have been taxed. The deal is, the contribution is is taxed (or has been taxed) and it is allowed to grow tax free and withdrawals, if done within the rules, are withdrawn "tax free."
Contrasted with a traditional IRA, which pre-tax dollars are contributed, it grows without any taxes due and withdrawals are taxed.
So, the question becomes, are your taxes lower now or in the future? And no one knows this. If your taxes are lower now than they will be in the future, a Roth makes more cents. If it is the other way around, a traditional IRA wins out. And as a couple of posters have pointed out above, having a healthy mix of both is probably wise.
I also like to point out that if your taxes are the same, it doesn't matter what you do. To a point. I personally believe that Roth funds will be "taxed" in other capacities, such as reducing your SS benefit.
how you plan to use the money also plays an important role. for example, if leaving a "legacy" to any future kids is important, a roth provides a significant advantage. There are lots of considerations.
I hope that answers your question.