ROTH IRAs - Tilted Forum Project Discussion Community

Jim Kata · 03-21-2006, 12:53 PM

Ok, so i did a little research on the internet and am still a bit confused. How is an IRA or ROTH IRA different from a 401 k plan?

I'm a bit slow on the uptake so if you can dumb it down for me, it would be greatly appreciated.

I'm 29 years old and have been putting a decent amount of money into a 401k for the past 8 years. I'm trying to set myself up for the future and figured the TFPers will guide me along in the right direction.

gar1976 · 03-21-2006, 07:28 PM

IRA and Roth IRA's are for people with no plan through work - if you qualify for a work 401(k), most of the rules prohibit you from putting into an IRA based on income limits.

At the least, put the minimum into your 401(k) to get the maximum employer match.

Also, they have Roth 401(k) plans now if your employer allows it - you might want to check it out.

IRAs also have much lower contribution limits. After you leave your current employer, you can leave your money in the 401(k) plan (they can't legally force you out in most cases), or roll it into an IRA.

SaltPork · 03-21-2006, 09:34 PM

A traditional IRA is tax deferred meaning you pay taxes on the money you take out after you turn 65. A Roth IRA is a post tax contribution, meaning you've paid the taxes up front and money taken out at age 65 is tax free.

You can contirbute to IRA's, Roth's, and 401K's all at the same time though. The limits imposed are on the individual accounts not on the collection of them. I personally have a 401K and 3 Roth IRA's. I contribute fully to two fo the Roth's the other I jsut let sit and make money.

When you leave your current job, or if, you can choose to leave your money in the company 401k unless that company goes out of business or they close the 401K. In that case you should get a notice. If you choose to move your 401k money you have a few options, but staying with the IRA thing, you can roll the 401 into a traditional IRA and pay no taxes, or you can roll it into a Roth and pay whatever taxes are owed. Typically with a Roth rollover you have three years to pay any taxes owed against the rollover, but it's usually easier to jsut get it over with unless the taxes owed create a hardship.

abscondo · 03-26-2006, 07:56 AM

Quote:

Originally Posted by gar1976

IRA and Roth IRA's are for people with no plan through work - if you qualify for a work 401(k), most of the rules prohibit you from putting into an IRA based on income limits.

That limit is up around $100,000, IIRC.

I'd definitely do a 401k if possible -- especially if your employer matches your contributions, because that's free money -- and a Roth IRA if you can.

MontanaXVI · 04-07-2006, 04:37 AM

lemme get in on this with some questions and notes of my own.

I worked at a company for 12 years and put a little bit into their 401, through Merrill Lynch, I quit the company back in Novemer and got a letter a few months later that since my balance was XXX but below XXX I had a few choices, I was allowed to leave the money with ML, and they would roll it into a traditional IRA and charge me about $40/year as a custodians fee or something (don't read that and jump up shouting and raising hell that is just the term that comes to mind it may have been called something else)

Or I could roll the money into another financial instutions IRA plan, or take the cash out which they would take 20% of and send it to the IRS for taxes, then I would get taxed anywhere from 10-20% more for eary withdrawl.

I chose to have the money rolled into an IRA at ING Direct where I have one of their savings accounts, and from what I read (this is where I would like the input) I could leave the money for X amount of years and then roll it into a Roth which would then allow me to have some limited access to the money without all the penalties of early withdrawl. Was I reading this right or did I just misunderstand?

Jimellow · 04-07-2006, 06:23 AM

My understanding is that companies will match your IRA contribution up to a certain percentage, oftentimes having the investment initially be in company stock. After a certain length of time, the money is put into a IRA and, potentially, funds of your choosing.

I tend to favor independent IRAs over 401k's, as I am not sure I will be making a career out of my current job, and while the money can be moved around if I were to leave, it seems like an unnecessary hassle that can be avoided by investing independently.

If you do pursue an independent IRA, I would certainly recommend a Roth, as it is nice getting the taxes out of the way initially, so that when you withdraw as a senior citizen, you will be able to withdraw the money without taxes being applied to the "grown" amount.

As for the details of why a Roth is better, I just know it is ideal. I tried explaining it to a friend through mathematics, but I'm an English major and math is not my strong field.

03-21-2006, 12:53 PM	#1 (permalink)
Jim Kata Swollen Member Location: Northern VA	ROTH IRAs Ok, so i did a little research on the internet and am still a bit confused. How is an IRA or ROTH IRA different from a 401 k plan? I'm a bit slow on the uptake so if you can dumb it down for me, it would be greatly appreciated. I'm 29 years old and have been putting a decent amount of money into a 401k for the past 8 years. I'm trying to set myself up for the future and figured the TFPers will guide me along in the right direction.

03-21-2006, 07:28 PM	#2 (permalink)
gar1976 Custom User Title Location: Lurking. Under the desk.	IRA and Roth IRA's are for people with no plan through work - if you qualify for a work 401(k), most of the rules prohibit you from putting into an IRA based on income limits. At the least, put the minimum into your 401(k) to get the maximum employer match. Also, they have Roth 401(k) plans now if your employer allows it - you might want to check it out. IRAs also have much lower contribution limits. After you leave your current employer, you can leave your money in the 401(k) plan (they can't legally force you out in most cases), or roll it into an IRA. __________________ Blistex, in regards to crappy games - They made pong look like a story driven RPG with a dynamic campaign.

03-21-2006, 09:34 PM	#3 (permalink)
SaltPork Everything's better with bacon Location: In your local grocer's freezer.	A traditional IRA is tax deferred meaning you pay taxes on the money you take out after you turn 65. A Roth IRA is a post tax contribution, meaning you've paid the taxes up front and money taken out at age 65 is tax free. You can contirbute to IRA's, Roth's, and 401K's all at the same time though. The limits imposed are on the individual accounts not on the collection of them. I personally have a 401K and 3 Roth IRA's. I contribute fully to two fo the Roth's the other I jsut let sit and make money. When you leave your current job, or if, you can choose to leave your money in the company 401k unless that company goes out of business or they close the 401K. In that case you should get a notice. If you choose to move your 401k money you have a few options, but staying with the IRA thing, you can roll the 401 into a traditional IRA and pay no taxes, or you can roll it into a Roth and pay whatever taxes are owed. Typically with a Roth rollover you have three years to pay any taxes owed against the rollover, but it's usually easier to jsut get it over with unless the taxes owed create a hardship. __________________ It was like that when I got here....I swear.

04-07-2006, 04:37 AM	#5 (permalink)
MontanaXVI Junkie Location: Go A's!!!!	lemme get in on this with some questions and notes of my own. I worked at a company for 12 years and put a little bit into their 401, through Merrill Lynch, I quit the company back in Novemer and got a letter a few months later that since my balance was XXX but below XXX I had a few choices, I was allowed to leave the money with ML, and they would roll it into a traditional IRA and charge me about $40/year as a custodians fee or something (don't read that and jump up shouting and raising hell that is just the term that comes to mind it may have been called something else) Or I could roll the money into another financial instutions IRA plan, or take the cash out which they would take 20% of and send it to the IRS for taxes, then I would get taxed anywhere from 10-20% more for eary withdrawl. I chose to have the money rolled into an IRA at ING Direct where I have one of their savings accounts, and from what I read (this is where I would like the input) I could leave the money for X amount of years and then roll it into a Roth which would then allow me to have some limited access to the money without all the penalties of early withdrawl. Was I reading this right or did I just misunderstand? __________________ Spank you very much

04-07-2006, 06:23 AM	#6 (permalink)
Jimellow Junkie	My understanding is that companies will match your IRA contribution up to a certain percentage, oftentimes having the investment initially be in company stock. After a certain length of time, the money is put into a IRA and, potentially, funds of your choosing. I tend to favor independent IRAs over 401k's, as I am not sure I will be making a career out of my current job, and while the money can be moved around if I were to leave, it seems like an unnecessary hassle that can be avoided by investing independently. If you do pursue an independent IRA, I would certainly recommend a Roth, as it is nice getting the taxes out of the way initially, so that when you withdraw as a senior citizen, you will be able to withdraw the money without taxes being applied to the "grown" amount. As for the details of why a Roth is better, I just know it is ideal. I tried explaining it to a friend through mathematics, but I'm an English major and math is not my strong field. __________________ Desperation is no excuse for lowering one's standards.