awful gaffe in front page story

forgive me if this has already been pointed out, the story should be revised or taken down in my humble view

it's in the housing story and says this --

The Roth is much better than the traditional I.R.A., because no taxes are paid when money is withdrawn. In effect, these tax-free withdrawals are a government handout

that is complete and utter bullshit and makes it clear the writer doesn't know what a ROTH IRA is

the reason ROTHs don't pay taxes when you withdraw is because you pay the taxes on this money before you put it in the ROTH in the first place, traditional IRAs are where you don't pay going in but you do pay going out

a little fact checking should be nice before a story hits the front page

there is NO gov't handout w. a ROTH, you merely chose when to pay, if you are in a lower tax bracket now than you expect to be when you retire, then you choose a ROTH and pay the taxes on the money now, if you expect to have a lower income and tax bracket when you retire, then you choose the traditional IRA and pay the tax when you withdraw the money in retirement

so a ROTH is not "much better" than a trad IRA or no one would still have trad IRAs, it completely depends on an analysis of your current versus your expected earnings in retirement, you can have a ROTH and end up paying more tax than if you have a trad or vice versa if your crystal ball is wonky



there is NO fucking gov't hand-out, this is your own money, and you DO pay taxes on it, ROTH or traditional, the only difference is WHEN you pay the taxes

jeebus people

i'll say it again -- a conversion to a Roth IRA requires you to include the taxable assets you're converting in current income

this is retirement savings 101, first grade, maybe even kindergarten

if you don't know that much, don't write abt retirement savings until you do

thank you, it's the asperger's syndrome in me but i like to see our arguments made based on facts

there are lots of fair and accurate arguments to be made abt tax cuts to the poor and housing cuts to the rich, edit the story to include some of them

i highly recommend fact checking with irs.gov ANY time a story includes a discussion of tax consequences and it is better to double-check w. your planner or accountant if you are still shaky on what you are reading

..but good catch. Roth withdrawals are clearly not government handouts.

your IRA withdrawals are tax-free

at least, they'd better fuckin be

Roth contributions are after tax contributions. You don't get a tax deduction for making contributions to a Roth.

Traditionals will still be taxed on withdrawal because those are made with pre-tax income...that is, you can write the contributions off your total taxable income.*

* provided you meet certain income limitations.

The principal amount contributed, which you've already paid tax on, is not taxed again when it's withdrawn.

The increase in value (interest, appreciation, etc.) is not taxed when it's withdrawn even though no tax was ever paid on it.

For a Regular IRA, I believe that all withdrawals are taxable, principal and interest. No taxes were originally paid on the principal when it was deposited but will have to paid as it's withdrawn. The incrase in value is also taxed when it's withdrawn.

That's why a Roth is often better, if you can afford it, because the increase in value is not taxed on withdrawal.

And withdrawals are charged at ordinary income tax rates, I believe. I have a Roth, not a Trad, so I'm more up on how those work.

the writer doesn't understand that the taxes on all money placed in the ROTH are paid upfront

of course there are all kinds of retirement grabbers who would like to see social security means-tested or taxes added if you have "too much" retirement savings ("too much" to be decided by some millionaire who won't be affected since he gets his money from such things as inheritance rather than working) -- if enough people re-frame savers as hoarders, there will be no sympathy for these greedy geezers as we've all heard them called, and the double tax will come

but we needn't help it along by calling for it on a progressive site!

I've got a question for you. Say I were to sell my overpriced Phoenix tract home and put the proceeds in a Roth IRA. Say I go down to Latin America for 10 years and live off the interest. Because the house proceeds are in a Roth IRA, I can withdraw from the principal (after-tax money) without having to pay any taxes or penalty, while the interest (pre-tax money protected by the roth IRA) continues to accumulate. Let's say I put $300K in a Roth IRA. Let's assume it makes 8% per year, or $24K. I need the $24K to live in Latin America, but instead of withdrawing the (pre-tax income) interest, I instead deduct $2K per month from the (after-tax) principal. After 10 years, I still have $300K in the account, although most of that will now be pre-tax. I'll be over 59 1/2, so I'll be able to access it without penalty, although I'll of course have to pay income taxes on the pre-tax portion. Is this how the Roth IRA is supposed to work?

You can only put $4000 per year into a Roth. You wouldn't be able to put the whole thing right off the bat.

you would not put your residence in a ROTH anyway, you can make a $250K profit on sale of your house and pay no taxes on the gain as long as you have lived in the house 2 of the last 5 years, so a ROTH would be redundant even if you could get enough of your gain into the ROTH anyway

a house is ITSELF a tax shelter but don't tell the retirement grabbers or they'll want to take that away too

you can only shelter a few thousand a year in a ROTH or trad IRA, and anyway you can't shelter income from capital gains in a ROTH or trad IRA, it has to be income from working (a job, a business reported on your schedule C or C-EZ etc)


whereabouts in latin america do you plan to live?

p.s. you are not going to get 8 percent a year gain in these wicked modern times in any legal investment, not long term anyway, so maybe you need more than $300K to retire

http://www.pensco.com/education/RealEstateOverview.asp


there are a number of tricky factors, though. in particular, you have to already have enough of a down payment and cashflow within your ira to support your real estate investment.

Just throw a few REITs in it.

he thinks he can start an IRA all in one chewy chunk w. $300K and go to nicaragua tomorrow and hide out until 59-1/2 unless i'm reading his post wrong -- which is always entirely possible

...

Already have my traditional IRA. The reason for selling the house and (trying to) put the proceeds in a ROTH IRA is that I heard it shelters the INTEREST, not the principal.

You have more chance of reaching an 8% goal if you put 40% into stock mutual funds, 10% in CD's and 50% in bond mutual funds. Of these, make sure that 50% are in dollar investments, and 50% in foreign investments. I diversified into foreign investments when I Bush-proofed my portfolio on 11/5/04.

I'm going to Buenos Aires, the Paris of Latin America. Actually more like Rome mixed with Barcelona and Madrid. Very nice place. Their currency is (and has been for many years) pegged at 3 to the dollar, but strangely one peso in BA buys what $1 buys in most places in the states. A good place to live as long as Argentine/US exchange rates don't shift too much.

So, I can't put my house proceeds in a ROTH/IRA. Means I'll have to pay taxes on $24K/year that I expect to earn in additional interest, once the house sells.

but being better or worse than traditional iras depends on many factors, most notably whether you're in a higher or lower marginal max bracket when you retire vs. when you contribute.

Trads are deductible up to a certain income threshold...but Roth contributions are non-deductible no matter what.

although it is true that contributions to either are non-deductible.

gains from non-deductible iras ARE taxed on withdrawal, whereas they are not from roths. there are other differences as well, but that's the biggie.

Didn't understand your distinction...thanks.