Financial Planner

[gpapadop]

Everyone is different. These decisions must be made from a wholistic point of view. And before giving proper advice the advisor must/should have a better understanding of the person he/she advises!

Having said that, here are some simple guidelines:

The younger you are, the more the Roth IRA makes sense!
If you can deduct a Traditional IRA contribution it is probably better that you take it for the instant tax savings!
Same for 401k tax contributions, max them if you can!
The guarantee of tax free treatment on Roth IRAs may be there decades later...maybe not. Stuff happens. My mother lives in Greece and her "guaranteed" pension was cut 25%. Like I said, grab what you are given now...I do!

Regarding the FAFSA thing: I am really not that familiar about it as my clients definitely do not qualify for any need based aid at all! You need to be careful with them as scams in this area are very common. People get so hung up on being "fancy" with the goal of maximizing financial aid that jackases/thieves out there will "help" you maximize that angle by conveniently selling you crappy investment products like annuities or (heaven forbid) universal life or whole life insurance policies! Run away from this crap!

Hope this helps.

[Barryg]

The reasons to get the Roth IRA even though...

Correct.  Though know let's assume tax rate is 25% and retirement will be 10%.  It would make sense to invest in Traditional IRA and be taxed at 10% in retirement than putting in Roth IRA now and taxed at 25%.

Is this correct?

Tax brackets may be higher in the future especially seeing the national debt and everything else that's going on, like the fact that long term care/medicaid medicare expense is skyrocketing. You may very well have income during retirement, even though you don't know for sure now. The biggest factor is how much your IRA will make... For example if you put in $100k and it grows to $1MM the Roth is clearly better as it will all be tax free. If it grows to $200k by retirement then reg IRA prob better...

[Dan]

Or the IRS can be eliminated one day and there will be a 20% consumption tax with exemptions for the poor...

[LA2NYC]

The reasons to get the Roth IRA even though...Tax brackets may be higher in the future especially seeing the national debt and everything else that's going on, like the fact that long term care/medicaid medicare expense is skyrocketing. You may very well have income during retirement, even though you don't know for sure now. The biggest factor is how much your IRA will make... For example if you put in $100k and it grows to $1MM the Roth is clearly better as it will all be tax free. If it grows to $200k by retirement then reg IRA prob better...

Any reason to be worried that Roth will be taxed down the line (when we take on the money in 30 years)?

[mordyl19]

I am a financial planner. And no I am not looking for new clients. People in forums with "deals" in their URL would probably not make good clients

I can answer questions here or by PM.

There are lots of charlatans out there, so be careful and take  your time!

Who do you work for and how long have you had your CFP Designation?

[Barryg]

Any reason to be worried that Roth will be taxed down the line (when we take on the money in 30 years)?

According to the post before yours... apparently, yes.
There is also a change the IRA/Roth IRA loses money or breaks even...
We can only plan for what makes sense now or else you'll drive yourself crazy. That's why I always go by Hishtadlus to do what makes sense. If you think market will average 8% from now and there's over 30 years till you retire, it's about the equivalent of $100k ----> $1MM and then Roth would make more sense with factors we know of now. Not saying that I think it will avg 8%...

[mordyl19]

Regarding the FAFSA thing: I am really not that familiar about it as my clients definitely do not qualify for any need based aid at all! You need to be careful with them as scams in this area are very common. People get so hung up on being "fancy" with the goal of maximizing financial aid that jackases/thieves out there will "help" you maximize that angle by conveniently selling you crappy investment products like annuities or (heaven forbid) universal life or whole life insurance policies! Run away from this crap!

Why would you say that annuities and whole life insurance policies are "crappy"? As I financial planner with clients who definitely do not qualify for any need based aid at all, I find it interesting that you have not come to utilize either an annuity tradtional/immediate or an insurance policy to help anyone. 

[magnus]

So the only argument for Roth is when your present tax rate is less than expected tax rate retirement? Roth is so hyped, but it seems that if you're working/making money, Traditional will be a smarter option most of the time.

If your current income is too high to qualify you for a deductible Traditional IRA, then Roth IRAs (backdoor) would be better, I believe.

[mordyl19]

If your current income is too high to qualify you for a deductible Traditional IRA, then Roth IRAs (backdoor) would be better, I believe.

You can also use a Whole Life insurance policy as a Roth Ira.

[Ergel]

Or the IRS can be eliminated one day and there will be a 20% consumption tax with exemptions for the poor...

In your wildest dreams

[churnbabychurn]

The reasons to get the Roth IRA even though...Tax brackets may be higher in the future especially seeing the national debt and everything else that's going on, like the fact that long term care/medicaid medicare expense is skyrocketing. You may very well have income during retirement, even though you don't know for sure now. The biggest factor is how much your IRA will make... For example if you put in $100k and it grows to $1MM the Roth is clearly better as it will all be tax free. If it grows to $200k by retirement then reg IRA prob better...

-1
If you predict such a healthy return, its best to do a traditional and invest the money as opposed to having a lower basis with the Roth.

[Lou Bob]

You can also use a Whole Life insurance policy as a Roth Ira.

+1

[DMYD]

A regular Whole Life policy can be a little difficult if used as retirement, A Custom Whole Life would work much better for retirement, you can choose how much you want to contribute and for how many years! 

[Barryg]

-1
If you predict such a healthy return, its best to do a traditional and invest the money as opposed to having a lower basis with the Roth.

I don't predict a healthy return, but I'm not the one deciding between reg and Roth IRA... It would be up to them to predict...
Using the originally discussed 24% tax bracket and my $100k example... If (the Roth of) $100k would grow to $1M then (the reg IRA) $133.33334k would grow to $1.33333334M. With the unknown future tax bracket, I'd pick $1M tax free over $1and 1/3 M taxed... Any advantages that you can think of in picking traditional, or is my math flawed??

[Barryg]

A regular Whole Life policy can be a little difficult if used as retirement, A Custom Whole Life would work much better for retirement, you can choose how much you want to contribute and for how many years!

AFAIK Custom WL is a NY life product, unless you're referring to something else... Why would a reg WL be difficult to use as retirement? I'm pretty certain that if someone wanted to, for example, put exactly $5000/year for 35 years, into a reg WL, they may come out with a random amount of face value in ins. plan, but how difficult could this possibly be??

[churnbabychurn]

I don't predict a healthy return, but I'm not the one deciding between reg and Roth IRA... It would be up to them to predict...
Using the originally discussed 24% tax bracket and my $100k example... If (the Roth of) $100k would grow to $1M then (the reg IRA) $133.33334k would grow to $1.33333334M. With the unknown future tax bracket, I'd pick $1M tax free over $1and 1/3 M taxed... Any advantages that you can think of in picking traditional, or is my math flawed??

Its the math!
FV of 100k at 10% over 20 years is 672,500 FV of 124k is 833.900
Factor in a reasonable future tax bracket and your still ahead with the traditional IRA.

[gpapadop]

>>>>>>>>>>>>>I find it interesting that you have not come to utilize either an annuity tradtional/immediate or an insurance policy to help anyone.

Fixed annuities have their place in the marketplace.
Variable annuities and insurance policies marketed as investments are a giant load of crap for the people who buy them (and super lucrative for the ones who sell them).

[skyguy918]

>>>>>>>>>>>>>I find it interesting that you have not come to utilize either an annuity tradtional/immediate or an insurance policy to help anyone.

Fixed annuities have their place in the marketplace.
Variable annuities and insurance policies marketed as investments are a giant load of crap for the people who buy them (and super lucrative for the ones who sell them).

By the ones who sell them are you referring to the agent/broker or to the insurance company? The fact is that for most companies that offer multiple types of permanent life insurance, the highest commissions will be on whole life, not on VUL. On the annuities side the highest will be on income annuities, not on FDA's and VDA's.

[Barryg]

Its the math!
FV of 100k at 10% over 20 years is 672,500 FV of 124k is 833.900
Factor in a reasonable future tax bracket and your still ahead with the traditional IRA.

First of all don't short change the Traditional, we were assuming a 25% tax bracket which would compare investing $100k Roth vs $133.33334k traditional.
Second of all you took an unreasonably high assumption of 8% that I threw out there, bashed it and took it to 10%, I would have lowered it to 6 or 7 and instead increase the amount of time until retirement to 35 or 40 years...
But why redo the numbers? I already had the $100k Roth investment at $1M and the Traditional at $1.33M. I'd guess you'd pick the traditional at $1 and 1/3 Mil taxes, I'd pick the Roth. One can also split if unsure.
Just thinking out loud here, if someone was 65 and was presented with a safe/lucrative investment and wanted to cash out let's say $500k from retirement fund in one tax year, it prob would suck if he picked the traditional IRA, no?

[12HRS]

Why would the standard assumption be looking at it from when you are 25 years old that at 65 you would want to take out 500k in one year?