johnnymk

I just found out that IRAs are taxable. I always thought they were never taxed. The only ones that supposedly aren't taxable are Roth IRAs.

I am glad I have only $5000 in them. If the Dems get into power in the next election and restore the previous higher tax rates, then I must cash them in before 2009.

bachviet

Of course it's taxable upon withdrawn since it was tax deferred. Roth IRA original amounts are not taxable but the interest is.

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Prngr44

Depending on your income levels at retirement, standard IRAs are sometimes a better choice than a Roth.

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DarkFury

Traditional IRAs are "tax deferred"... which assumes that your tax rate upon retirement will be LESS than your active working tax rate. Because the taxes are deferred, you are not paying higher taxes now on the money that you will recieve later in a lower tax bracket.


From my understanding... Roth IRAs use "after tax" money to fund them, therefore the interest they accrue until retirement is tax exempt.

At least that is what my Roth IRA manager told me.


Here is an article on it:
http://www.kiplinger.com/columns/sta...006/st0309.htm



If you take your Roth money out early (prior to retirement)... THEN you may be taxed on it.

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cheapie

income at retirement? like rental property or interest income? cuz when i retire, i don't plan on working at all!!!

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johnnymk

cheapie. I don't know where your money will be coming from, but all income is taxable. Even a portion of social security is taxable depending upon your income.

cheapie

SS is taxable? sheesh.

DarkFury

Except the income from a Roth IRA is NOT taxable. You already paid the tax on that money when you put it in there from the beginning.


Yup...

Uncle Sugar ain't gonna give ya a free ride without diggin' his hand in your pocket. C'mon now... you shoulda known that.

cheapie

sheesh. i guess i didn't think of it as income since it's MY money that uncle sam got a free ride on for my entire career.

bachviet

That was what I meant (tax on interest upon retirement/withdrawn).

cheapie

nope. that's the beauty of the roth ira. interest grows tax free.

Daedalus

Both IRAs offer tax-free compounding, meaning your earnings are allowed to compound without an annual haircut. This makes a considerable difference over time. The only difference between the 2 IRAs is in the tax rate applied.

Roth (taxed up front):
VALUE = (INCOME) * (1 - T) * (GROWTH OVER TIME)

Traditional (taxed later):
VALUE = (INCOME) * (GROWTH OVER TIME) * (1 - T)

If T, tax rate, is the same, then the two IRAs give the same final net result. The growth over time depends on your investments, not the type of IRA. The only difference between them is T, your effective tax rate. Again, if you think you pay higher taxes now than you will later, then use a traditional. If you think your tax rate in retirement will be higher than it is now, then use a Roth. I favor a Roth, since I expect that my effective tax rate will be higher later due to both having a higher real income and politicians inability to control govt. spending.

EDIT: Oh, and the Roth effectively has a higher contribution limit, since the taxes have already been paid.

YellowCoffee

Correct me if I'm wrong, but a Roth will also let you take out a lump sum w/o bumping your tax rate up. Is this correct?

renovation

i dont mind paying my fair share of taxs. i know someplace along the line uncle going to tax it . i have stocks ,bonds , CD's ,IRA's and property .and im sure he dig in and take a part of it.

just a fyi if you don't know this .you are not allowed by law to stash cash in a safety depost box in a bank .

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DarkFury

Just stuff it in your mattress... next to your shotgun

zippyjuan

The same contribution limits exist for both Roth and regular IRAs. On a Roth IRA you pay tax on the income you put into it, but the money you take out are not taxed. A standard IRA contribution is not taxed but everything paid out to you in retirement is considerred taxable income. You can divide your elgible money between the two types of IRS if you want but the combined contributions cannot exceed the allowable amounts.

For example, if your age and income levels allow you to make a $4000 contribution this year, you can put either $4000 into a Roth IRA or $4000 into a standard IRA or say $3000 in one and $1000 in the other. You would pay tax this year for the Roth contribution but none this year for your standard IRA contribution.

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cruelpupet

The money you put in isnt taxable as it was already taxed, but i thought the capital gains made on it was tax deferred just like the traditional.

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brainsmile

Better to convert them to Roth when the 2010 conversion is possible. You can convert the traditional IRA to a roth at any time. Easier way to build up your roth account faster and then have it tax free later on.

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DarkFury

Nope..

Go back and ready the article I quoted above.