Talk:Roth IRA
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OK, IANAA but I'm pretty sure that I was correct in adding the clarifying statement "and a constant tax rate" to the section contrasting traditional and Roth IRAs. Let me know if I'm wrong here. Also, there should probably be something mentioned about Roth IRAs kind of acting as a bet that taxes will rise. Anyone else have input? Maybe somebody w/ real accounting expertise. Bugg 19:59, Nov 19, 2004 (UTC)
[edit] Maybe a silly question.
If your income is already taxed then why would you have to pay a tax when you deposit the income that's leftover into an individual retirement arrangement?
- Because the US government knows most people don't actually track their finances well enough to notice how much is being constantly taxed away.
- I think you misunderstand. Without an IRA you pay taxes on your income when you receive it, and you pay taxes on any interest, dividends or capital gains resulting from the investment of that income. These are separate things; there is no double-taxation. With a Roth IRA, you only pay taxes on the original income. With a traditional IRA you pay taxes on the whole, but taxation is delayed until you actually cash out, allowing your investment to compound longer. -- Scott eiπ 09:55, 3 April 2006 (UTC)
[edit] um
"With the assumption that one is in a 30% tax bracket and then contributes $1000 to a traditional IRA, the individual would pay $300 less in taxes, and hence the investment would only cost the investor $700." <-- the math doesn't seem to add up here.
Everyone should remember that the 401(k) and IRA are not a retirement plans, they are saving plans. They guarantee nothing at retirement, what you get is based on how successfully you invest. For example if you had invested in the stock market during 2000 to 2004 you could easily have lost half your money.
- You can put your IRA into a FDIC insured bank account if you like. Steve Dufour 07:16, 9 February 2007 (UTC)
[edit] Re: um
What doesn't add up about the math? It seems right. Let me walk through. Let's say (hypothetically) a person earns $10,000 and is in a 30% tax bracket (not the case in the US, but we'll assume it for the sake of simple calculations). Assume he makes no traditional IRA contributions. Then he has $10,000 taxable income at a 30% tax rate, and thus pays $3000 taxes, leaving $7000 in the end (and $0 in his IRA). Now assume he makes a $1000 traditional IRA contribution. This contribution is tax deductable, and thus he only has $9000 in taxable income. Hence he pays .3*$9000=$2700 in taxes, and his post-tax income is then $10,000-$2,700=$7300. He put $1000 in his IRA, so he only has $6300.
So therefore, if he contributed nothing, he has $7000 at the end of the year. If he contributes $1000, he has $6300 at the end of the year. Thus his investment only cost $700.
What's wrong with that?
[edit] I see
I was confused by "pay $300 less in taxes." I thought that meant that he would pay $300 less towards the IRA, due to taxes, or that he'd pay $1000, be taxed $300, and $700 would land in the account, so the cost to the investor would be the full $1000.
[edit] Conversions?
Shouldn't we mention the provision for convertinga Traditional into a Roth?
Agreed. Somewhere this article should mention the convertability between one into the other. Does anyone have a solid background in IRA investment? I know people often shift their accounts from traditional into Roths. Also, there is somewhere inside the conversion that specifically deals with realized capital gains during the current year that confuses many people.
[edit] Contribution Limits with both Traditional and Roth IRAs
The IRS's Publication 590 "Individual Retirement Arangements (IRAs)" says, "If contributions are made to both Roth IRAs and traditional IRAs established for your benefit, your contribution limit for Roth IRAs generally is the same as your limit would be if contributions were made only to Roth IRAs, but then reduced by all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs." All IRAs other than Roth IRAs and SEP or SIMPLE IRAs seems only be the Traditional IRA. Am I correct? I added that comment to the Roth IRA wikipedia article.
[edit] Are Yearly Contribution Limits Net or Gross?
Are yearly contribution limits to a Roth IRA net or gross?
For example:
John Doe has 10,000 dollars in his Roth IRA in 2006 (8,000 from contributions in the previous two years and 2,000 dollars in earnings). Dutifully, John maxs out his contributions in 2006 by depositing another 4,000 dollars. Six months later, however, John has a non-qualified emergency and withdraws 5,000 dollars from his Roth account. Since, he had 12,000 in contributions, the withdrawal is tax-free. Several weeks later, John's situation improves and he wants to contribute again to his Roth account for the 2006 tax year. How much is he able to recontribute? 5,000 thousand, so as to have a net contribution of 4,000 for tax year 2006? 4,000, since he can't make up for withdrawals that tapped into contributions prior to 2006? Or, is he unable to recontribute any portion of his withdrawal since his gross contribution for 2004 was already maxed out by his first contribution in 2006.
[edit] New Tax Law for income limits on conversions from IRA to Roth IRA
The recently signed tax law (signed May 2006) lifts income limits on conversions.
Hurray...tax free growth (after paying up front)!
Here is a question; can I roll over my 401k into my IRA, and then convert the whole amount into a Roth IRA?
[edit] References
I don't see anything in this article cited specifically with references. All the information looks correct to me, but I can't be sure. We should introduce references for different facts. --Liface 16:20, 12 July 2006 (UTC)
[edit] Age restrictions?
At one point in the article, it says "Provided that a taxpayer has earned income (and is within the modified AGI limits), contributions can be made to a Roth IRA at any age." Later the article says "You must be 18 years of age or older earning less than $110,000 (single) or $160,000 (married, filing jointly)". Which is it? Can someone under the age of 18 contribute to a Roth IRA? --dm (talk) 00:31, 12 December 2006 (UTC)
[edit] Under 18
A ROTH can be established for a minor provided that minor has a taxable income equal to or greater than the amount given the ROTH (but less income than the limit of $95,000. for a single person.)
[edit] Awkward?
"If one is not able to max out one's IRA contributions, and ends up in a lower income tax bracket at retirement, then one will wind up with less usable cash by choosing a Roth IRA over a Traditional IRA." This should be changed to improve readability. If one so wishes.
[edit] Where does the term Roth come from?
Is Roth someone's name? An acronym? What's the history behind this name and the retirement account program? What legislation allowed this? —The preceding unsigned comment was added by 67.169.91.53 (talk) 20:55, 17 March 2007 (UTC).
- Read the article - your answers are there. --ZimZalaBim (talk) 20:57, 17 March 2007 (UTC)
