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Comment: Re:Simple (Score 1) 530

The size of the contributions you can make to Roth IRAs are very limited, making them useless as your sole retirement investment vehicle. 401(k)s let you put in much bigger contributions, and grow tax free. Only withdrawals are taxed.

The contribution limits for traditional IRAs are the same or lower than those for a Roth IRA. I don't know much about Roth 401(k) accounts, so I won't comment on how they compare against traditional 401(k) plans.

You're comparing IRAs against 401(k)s. I was making a statement comparing traditional retirement accounts against Roth retirement accounts. Apples, oranges.

Comment: Re:Not exactly endearing you to the public (Score 1) 393

While I agree with an overwhelming majority of your expressed sentiment, I take issue with one little part.

I was under the impression that ITTT really was a good school now. Are you just talking smack because you're tired of working with Indians, or am I wrong in my belief?

Disclaimer: While I'm not Indian (although I am a European immigrant), I do live in one of the most Indian places in the United States (my town of ~100k is 28.3% Indian).

Comment: Re:Simple (Score 1) 530

Okay, so let's make up some numbers and say your current tax rate is a whopping 50%, and you expect that during retirement it will be a paltry 25%. Also, let's say that of the $500K in your IRA, $100k is principal and $400k is gains.

Traditional IRA:
You grossed $100k to get that $100k into a traditional IRA. You paid no taxes on it. You'll be paying 25% on the full $500k when you take disbursements. That's $125k in taxes, total.

Roth IRA:
You grossed $200k to get that $100k into a Roth IRA. You paid 50% tax on it. You'll be paying 0% on the full $500k when you take disbursements. That's $100k in taxes, total.

So here we have a case where "you expect that those taxes will be less than your current tax rate", and indeed, the traditional IRA has a greater tax burden than a Roth IRA.

Of course, I admit that it's possible that you won't see those types of returns in your IRA. Perhaps you started saving later in life. Perhaps you just really suck at investing. I'll freely admit that it's possible that most of your retirement fund is principal and not gains. However, as far as I know, that's not a likely scenario.

Is my "80% gains / 400% growth" assumption unreasonable for a typical retirement account? I mean, you get this type of growth at 7.18% for 20 years; not exactly unrealistic. The S&P 500 has averaged 13.29% from 1980 through 2013. At this rate, it would take just over 11 years to get 400% growth. If anything, my assumptions are rather conservative.

Comment: Re:Simple (Score 1) 530

Modified Adjusted Gross Income limits (2013):
Single filers: Up to $112,000 (to qualify for a full contribution); $112,000–$127,000 (to be eligible for a partial contribution)
Joint filers: Up to $178,000 (to qualify for a full contribution); $178,000–$188,000 (to be eligible for a partial contribution)

Depending on how good your accountant is, this is more like $150k for singles, $200k for married couples.

Also, while these MAGI limits apply to Roth IRAs, I can't help but point out that traditional IRAs also have MAGI limits as well:
Single filers: Up to $59,000 (to qualify for a full contribution); $59,000-$69,000 (to be eligible for a partial contribution)
Joint filers: Up to $178,000 (to qualify for a full contribution); $178,000-$188,000 (to be eligible for a partial contribution)

Actually, it looks like traditional IRAs can't be used if you earn half as much.

Citations: Traditional, Roth

Comment: Re:Pick a different job. (Score 1) 530

I live in NJ, a right to work state. My employment at the neighborhood ShopRite and Pathmark came with union membership at both stores. I was paid minimum wage at both stores. All the cashiers were (to start). It wasn't possible for me to (legally) take a pay cut from there. I'm not sure what you're saying. Perhaps cashiering at a supermarket is the ticket to riches where you live, but it seems that unions are preventing the unreasonable escalation of labor costs here in right to work NJ.

Comment: Re:Simple (Score 1) 530

Didn't know about the Saver's Credit. In my native NJ, having an AGI of $60k for a married couple would land you square in the in-laws basement. No way in hell you'd have money to raise kids, let alone to put aside for retirement. I have trouble remembering that there's places in this country where that's not the case.

Comment: Re:Simple (Score 1) 530

The amount you "put in" is taxed either way. The only difference is when it is taxed. With a Roth, you're taxed only on the amount you "put in", immediately. With a traditional, you're taxed on both the amount you "put in" as well as any gains, but only after you withdraw it all.

With a traditional retirement account, you're taxed on both the money invested as well as the gains from that money. With a Roth retirement account, you're taxed only on the money invested, and not the gains. This, to me, makes a Roth retirement account considerably more attractive, particularly since after a long time of accruing reasonable yields, a majority of most retirement accounts' values stem from capital gains, not principal. Is it not true that in the long term, the value of a retirement account is dominated by capital gains, not principal?

Of course, I recognize that there's many variables here, so this may not be the case for everyone. For example, perhaps one somehow has a very high tax rate as a worker saving for retirement, and a very low tax rate as a retired person drawing from retirement accounts. In such a scenario, it might make more sense to pay the tax up-front and invest in a traditional retirement account, only paying (the lower rate) tax when drawing from these retirement accounts. However, since the bulk of most retirement accounts (at retirement) is from capital gains, not principal, I can't imagine a marginally lower tax rate compensating for a vastly larger sum of taxable income/gains in any ordinary situation. Another scenario is where the investor enjoys only miniscule gains. In this case, the retirement account would contain primarily principal, and the benefit of the Roth would likely be outweighed by the traditional account's (usually) better tax rates. However, I don't see either of these scenarios as especially likely. Am I missing some other (hopefully more likely) scenario where the traditional retirement account is preferable to a Roth?

I am not an accountant. Your mileage may vary. Side effects may include nausea, stroke, or death.

Comment: Re:Zooooom! (Score 2) 227

Hi bobbied. I see your posts in this thread. You come across as either disingenuous or willfully obtuse.

I hate both mainstream political parties equally, so don't think I'm some Republican-bashing Democrat. I just wanted to point out that your niggling seems a lot like a no-true-Scotsman informal fallacy. Nobody ever claimed that all Republicans nationwide are actively campaigning for a repeal of the minimum wage. The statement you objected to initially, "Watch Republicans campaign again to get rid of the minimum wage", is not an exaggeration as long as repeal of the minimum wage is supported by one or more Republicans, but especially so if the primary support for this position comes from the Republican crowd. Since this is indeed the case, the statement is reasonable.

One picture is worth 128K words.