Wife just got a job- IRA question

[akfodysvn]

Isn't the Roth taxed on the way in versus when you withdraw a traditional at retirement? I would rather have my money taxed before it generates tens of thousands in interest. Maybe I'm misinformed

[slow99]

Yep, taxed going in...hence contributions don't reduce agi. So if you anticipate a higher rate later, go roth. That's the point of a roth ira, roth 401k, etc.

[akfodysvn]

So can you help me understand why then it will matter what bracket I'm in later? Even if I stay in the same bracket, wouldn't I save less in taxes paid by paying the interest up front vs on the total investment plus interest?

Sorry if I sound dumb, but it's new to me. So are you saying that if I stay in the same tax bracket, it's not advantageous to have a Roth vs a traditional? I do anticipate being in a higher bracket, but now I'm just trying to learn.

[slow99]

So can you help me understand why then it will matter what bracket I'm in later? Even if I stay in the same bracket, wouldn't I save less in taxes paid by paying the interest up front vs on the total investment plus interest?

Sorry if I sound dumb, but it's new to me. So are you saying that if I stay in the same tax bracket, it's not advantageous to have a Roth vs a traditional? I do anticipate being in a higher bracket, but now I'm just trying to learn.

I'm on my phone at a conference, but yes the tax bracket is the advantage. That's it...most people expect to be in higher tax brackets as they age and progress in their career. If you take it off the top going in, the $ isn't there to grow in the first place, think of it that way.

[quikag]

I'm on my phone at a conference, but yes the tax bracket is the advantage. That's it...most people expect to be in higher tax brackets as they age and progress in their career. If you take it off the top going in, the $ isn't there to grow in the first place, think of it that way.

Earning are tax free too if you pull them out after 59.5 years old. That is the biggest benefit to the Roth. Post-tax $5k goes in, grows to $40k or whatever and you can pull out the $40k tax free at 59.5.

[slow99]

Earning are tax free too if you pull them out after 59.5 years old. That is the biggest benefit to the Roth. Post-tax $5k goes in, grows to $40k or whatever and you can pull out the $40k tax free at 59.5.

Yep, that's right. Sounds like you're confirming what he was asking and did a better job than I was. I was trying to relate something else but it probably isn't that necessary.

[akfodysvn]

Thanks guys, the past 59.5 is what I was trying to get at. Her simple is going to kill our Roth contribution which sucks but at least w get 3% free money, but I'd rather max the 5k/year in the Roth for the tax benefits