Getting The Most Out Of Retirement

Andy earns too much to contribute to a Roth IRA, and he wonders if it's prudent to put money into a traditional IRA or a non-retirement account.

QUESTION: Andy in Texas earns too much to contribute to a Roth IRA, and he wonders if it’s prudent to put money into a traditional IRA or a non-retirement account. Dave has an idea that Andy might just want to hear about.

ANSWER: You’ll be taxed on it as you go along, so a traditional is better. Taxes may or may not be higher in the future, depending on the political climate. We don’t know that. The assumption usually is that you’ll be at a lower tax rate in retirement than you are today, all things being equal, because your income will be down.

You can fund a traditional, because you make over $150,000 a year married filing jointly, and roll it to a Roth IRA. I did it for myself and my wife, so that totals $12,000. It lets that amount grow tax-free from this point forward, and that is worth it. We just want to keep the government’s hands off of as much money as we can, not only philosophically but mathematically to allow it to grow.

If you put in $10,000 a year as a couple, from age 30 to age 70, at 12% it would come out to about $9 million. But of that, you have only put in about $400,000. The rest of that is growth that has no taxes on it. That’s pretty substantial.

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