How do I decide between Traditional or Roth

[swaymonae]

I keep reading up on the differences between the two.. but I still don't know which one is best for me. How do I decide?

[swaymonae]

^ uppers

[sweeps]

Roth -- better if you believe your tax rate will be higher at retirement than it is now. Also better if you think you might need the funds in an emergency (principal withdrawals are tax and penalty free).

Traditional -- better if you believe your tax rate will be lower at retirement than it is now. Lowers your taxable income now which may make you eligible for certain credits/deductions that you wouldn't otherwise be because of income limits.

[financialnut]

Well said! I have nothing more to add.

Personally, I don't believe taxes are going to get any LOWER; I mean, come on- you seriously think that we're going to see taxes REALLY get cut?

Take advantage of a Roth IRA while you still have time.

[swaymonae]

How do you choose where to start an IRA?

[financialnut]

I don't think it really matters where you start your IRA. Just use one of the big brokerages- Fidelity or Schwab. Open an account there and they'll show you the ropes.

I am a huge Fidelity fan. I've used them for a long time, and their customer service is unbelievable! I love it!

[swaymonae]

Thank you for your help.. one last question pls...

What the difference between a "Savings IRA" & an "Investment IRA"

[financialnut]

Remember that an IRA is simply a place to put your money to protect it from taxes. So- think of the IRA as the shield that keeps the governments greedy hands from taking more of your money.

What you decide to do with the money in your IRA is your choice. You could "save" that money in T-bills and bonds; you could investment that money in index or mutual funds. It just depends.

[disneysteve]

Originally Posted by financialnut

I don't think it really matters where you start your IRA.

I'd have to disagree with this statement. I think where you invest matters a great deal. You could choose the wrong place and pay hundreds or thousands in commissions, fees and expenses unnecessarily as compared with a discount broker or low-cost no-load mutual fund company.

Decide what type of investments you want. If you want to buy individual stocks and bonds, choose a discount broker like e-trade or Scottrade. If you want mutual funds, choose a low-cost no-load company like Vanguard, Fidelity or T.Rowe Price. If you want a little bit of everything, a good choice is Charles Schwab.

What you don't want is a full-service brokerage like Merrill or Morgan Stanley or Edward Jones. They are all excellent companies but charge high fees for their services and really don't do anything that you can't do by yourself with a little bit of time and research.

[disneysteve]

Originally Posted by financialnut

Remember that an IRA is simply a place to put your money to protect it from taxes. So- think of the IRA as the shield that keeps the governments greedy hands from taking more of your money.

What you decide to do with the money in your IRA is your choice. You could "save" that money in T-bills and bonds; you could investment that money in index or mutual funds. It just depends.

True. And you aren't limited to one choice. Within your IRA, you can have stocks, bonds, mutual funds, real estate, commodities, etc.

[swaymonae]

Thanks guys! Much appreciated!

[MonkeyMama]

I have something to add. Since it is impossible to predict future taxes, I think a ROTH is far favorable if you are young. If you are in your 20s or 30s. Think of everything you have read about the power of compounding. There is nowhere else you can put money and let it grow for 40 years, and take it out tax free. Basically, the tax savings can be pretty substantial for young people with a long investing horizon. Even if your tax bracket is higher now. You only pay tax on the principal - not the growth.

Of course, if you are in a high tax bracket, take the deduction now. It's kind of moot with IRAs. You probably can't contribute if you are in a high tax bracket. So in general, I'd prefer the ROTH for about anyone in their 20s/30s.

Tax law regarding ROTHs probably will change down the road, yes. But tax changes are rarely, if ever, retroactive. All the more reason to plump up those ROTHs while you can.

[financialnut]

Originally Posted by disneysteve

I'd have to disagree with this statement. I think where you invest matters a great deal. You could choose the wrong place and pay hundreds or thousands in commissions, fees and expenses unnecessarily as compared with a discount broker or low-cost no-load mutual fund company.

Decide what type of investments you want. If you want to buy individual stocks and bonds, choose a discount broker like e-trade or Scottrade. If you want mutual funds, choose a low-cost no-load company like Vanguard, Fidelity or T.Rowe Price. If you want a little bit of everything, a good choice is Charles Schwab.

What you don't want is a full-service brokerage like Merrill or Morgan Stanley or Edward Jones. They are all excellent companies but charge high fees for their services and really don't do anything that you can't do by yourself with a little bit of time and research.

For sure. Thanks for the correction. I agree with that completely.