Drew 
Sammamish, WA
Wine Bottler
Posts: 3359
 | | 10-10-2008 09:20 AM |
| My accountant has been after me to move from an IRA to a Roth, as this is the "last" year that you can make that move and shift the tax exposure over two years. Reason for the move is that any gain I make in the Roth is tax free, whereas if I cash out of a regular IRA, I have to pay taxes on it. My understanding is: - I can move the money from one vehicle to the other, paying a lower tax hit (since I'm off 36%)
- I can split that tax burden over this year and next
- In the event the market ever recovers, the new profit will be tax free
- I can realize a loss from the sale of the IRA portfolio at a loss?
Thoughts? | | |
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Winetex
Austin, Texas (pretty fall colors here)
Master of Wine
Posts: 11301
| | 10-10-2008 09:48 AM |
| Is there a difference in liquidity? | | | |
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Drew
Sammamish, WA
Wine Bottler
Posts: 3359
| | 10-10-2008 10:28 AM |
| no, you're stuck with both until 55 or whatever. From my understanding, the major difference is that the IRA is pretax, the Roth is post. Gains made in a roth are tax free, gains in an IRA are taxable when you withdraw. Again, that's my understanding. So, if you're in it for a long haul, it's a great idea to go Roth. If you're trying to save money NOW and build up a base to grow on, a regular IRA is good. Again, I could be totally out to lunch here, but reading the combinations of this and the eBob thread this morning clicked in that this might be the right time to make the move. | | | |
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Winetex
Austin, Texas (pretty fall colors here)
Master of Wine
Posts: 11301
| | 10-10-2008 10:34 AM |
| You are fairly young so it's the long haul for you. | | | |
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Rothko
Palm Beach
Wine Connoisseur
Posts: 5723
| | 10-10-2008 10:39 AM |
| I think you also need to consider what your potential tax rate will be when you retire. If you think you'll be in a high-tax rate, then the Roth is the way to go. If you might be in a lower tax rate, then paying the taxes later isn't such a bad thing. Predicting what the tax rates may be in 20 years, however, is sheer guesswork; predicting your retirement income in those years hopefully is not.
Also, it may depend on how far out from retirement you are.
Personally, I am a fan of the Roth. How many investments are truly tax-free? I just am waiting for the day when Congress figures out how to screw everybody who opened Roth IRAs and Roth 401Ks.
There are lots of calculators on the Internet to help you make a decision whether to switch or not. | | | |
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wineismylife
Arlington, TX
Master of Wine
Posts: 12538
| | 10-10-2008 11:11 AM |
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Posted By Rothko on 10-10-2008 10:39 AM
I think you also need to consider what your potential tax rate will be when you retire.
Key point when deciding to go with Roth or Traditional. My personal opinion is it's 6 of one and half a dozen of another. | | | Joe-----Wine is like potato chips around me...if it's open, it's gone. | |
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Drew
Sammamish, WA
Wine Bottler
Posts: 3359
| | 10-10-2008 11:27 AM |
| Just found out that your AGI has to be under $100k to convert and spread the tax over 2 yrs. | | | |
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ChillyWino
Barrel Racker
Posts: 1831
| | 10-10-2008 11:42 AM |
| Also if you have an employee sponsored plan you can't deduct your contributions to a regular IRA (Roth you can't no matter what). This is why I go with a Roth since the potential of no taxes down the road is appealing, since I get no breaks now either way.
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scottj
Houston, TX
Barrel Filler
Posts: 1116
| | 10-10-2008 11:51 AM |
| Drew,
There was a provision in a tax law passed a few years ago that removes the AGI limitation for the tax year 2010 only. Of course, at the rate we're going, a traditional IRA may have no value by then ... and the laws may be changed before then to eliminate this possibility. | | | |
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AlexRed
Northern VA
Wine Thief
Posts: 2673
| | 10-10-2008 11:55 AM |
| i thought the rules used to be that you couldn't do a Roth at all if your income was over a certain amount. Those might have changed though or maybe they are being phased out. seems like a great idea to me if you can do it.
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tanglenet
Oakland, California
Wine Bottler
Posts: 3397
| | 10-10-2008 12:07 PM |
| Posted By AlexRed on 10-10-2008 11:55 AM
i thought the rules used to be that you couldn't do a Roth at all if your income was over a certain amount.
| | | TN posted on Cellartracker"
I drink no more than a sponge." François Rabelais | |
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AlexRed
Northern VA
Wine Thief
Posts: 2673
| | 10-10-2008 02:21 PM |
| thanks tanglenet. that is what i remembered. | | | |
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