IRA or Roth IRA

[nsusa]

I am getting a little bit confused when deciding what kind of IRA I can actually go for. Any advice would be appreciated.

I am married and our Gross income according to 1040 is around $91,000 for 2003. I want to open an IRA or Roth IRA. From the amount of our income I would assume that the Roth IRA is only option. Is this correct?

Thanks for any help.

Chris

[terry1156]

It is the Gross Adjusted Income that matters:

For a regular IRA account, the phase out earnings is $65,000 - $75,000. If you make above $75,000, your entire contribution is nondeductible.


For the Roth IRA, the following limits apply.

Single $95,000
Married filing jointly $150,000
Married filing separately, living apart for entire year $95,000

With these in mind, a Roth IRA is your best option.

[nsusa]

Thanks.

[Tree0164]

I agree a Roth would be better.

[jmjj215]

Assuming your IRA would be deductible, most of the time the Roth is still the better choice. You would have to look at what you thought your tax bracket would be when you withdrew the money upon retiring.

A lot of times people jump into the roth idea because the money comes out tax free. But if your earnings are going to be less when you retire then it might be smarter to do the normal IRA. I'm still pretending your deductions weren't phased out.

The value of a dollar saved today is pretty substantial when one considers a normal ira deductions, as long as it can be offset by the future cost of having your disbursements taxed. I for one will do the roth I think indefinitely, because I hope to make just as much money when I retire!

[nsusa]

I do have a 401K, too and I guess that puts me also out of the reach of the deductible IRA.

Chris

[jmjj215]

I'm not a tax expert by any means but I don't think having a 401k excludes you from also having an IRA. They both do effectively the same thing - allow you to deduct your contributions up to a certain limit. The 401k simply allows for some employer matching (hopefully!).

[terry1156]

nsusa,

Yes, that is correct. If you earn too much income, or already participate in a 401(k) or similar retirement plan, your tax-deductible contributions to a regular IRA are gradually phased out.