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Thread: ROTH IRAS.....need help

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    Default ROTH IRAS.....need help

    Hey everyone! Quick introduction....I've been stripping for 3 years on-and-off (the first 2 years only when I needed extra money fast....I had other jobs), and recently at the beginning of 2007 I decided to become a "career stripper" and make it my only job. Well, I got myself out of debt, rented a house, got a BA, and started saving up (thank you stripping!). It really helped me learn to manage my money!!
    I know a lot of you girls have your money invested, and I was wondering if you could give me some advice. I am really curious about Roth IRAs. I had a conversation with some guy once who told me he had put money into it, like 20 grand, and in 10 years when he can take it out its going to be worth so much more. I'm VERY clueless about this, so could anyone help me out and explain in layman's terms how they work? Also, any particular banks to avoid/which ones are the most reliable? Thank you

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    Banned Katrine's Avatar
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    Default Re: ROTH IRAS.....need help

    Roth IRA: max. contribution = $4K a year if your income is under $95K, filing single, $150K if married filing jointly. Then it starts to phase-out . Contribution goes up to $4,500 next year. You can access the principal, interest, dividends, and gains tax free at age 59.5.

    You can also pull the gains without a penalty for education expenses and a first-home. However, the gains would be taxable. So use it for retirement.

    Is your friend age 49+? Has he been contributing to it over the years? Because it hasn't been around that long and contribution limits have been steadily increasing.

    There are tons of resources on the web for the rules, do a Google search.

    If you can contribute, its a great vehicle to use, but you need to do something else too if you want to retire before 60 and want to have funds to live off of.

    "Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
    "And do the cats give a shit? No, they do not. Why? Because they're cats."-from The Onion

    Quote Originally Posted by Mia M
    If a cupcake was tossed at me... well, I'd only be upset if it missed my mouth

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    Default Re: ROTH IRAS.....need help

    Cutting down to the bare essentials, a Roth IRA is a gov't sanctioned retirement account that, under CURRENT law, allows a person to contribute after-tax money to the fund that will NOT later be counted as taxable income when than that money is eventually withdrawn. Additionally, the interest/dividends earned on Roth IRA investments is allowed to accumulate without additional tax being charged. Thus a Roth IRA versus straightforward investments, under CURRENT law, offer a potentially higher rate of return.

    On the minus side, contributing to a Roth IRA does require a commitment that you will not withdraw 'gains' on your IRA contributions until you reach retirement age. Doing so will result in taxes plus penalties being immediately due on those 'gains' . But you can withdraw your original contribution money without penalty. Also on the minus side, Roth IRA contributions are officially documented and are obviously reported to the IRS.

    From one viewpoint, any contributions to a gov't sanctioned IRA of any kind constitute a 'gamble' that the gov't won't decide to change the rules which CURRENTLY apply in regard to tax exemptions, counting IRA money as income, reducing other gov't funded retirement benefits because of the existance of IRA money etc. before you reach retirement age. If you are age 50-55 there's a pretty good chance this won't happen. But if you are age 20-25 there's a pretty good chance that this WILL happen. Thus younger people should really judge for themselves whether or not committing money to an IRA is a good 'risk' or not as compared to conventional investments.

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    Banned Katrine's Avatar
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    Default Re: ROTH IRAS.....need help

    But really Mel, if you were 25, would you be willing to take the chance that the government will act in such a way and provide SS benefits to those only without enough retirement savings? What if that doesn't happen at all, and those who didn't save into retirement vehicles are screwed?

    NOW...I'm not saying that non-qual investing isn't an option, but the tax benefits of a Roth are pretty attractive. However, I do see where you are coming from. In my point of view, I would rather have control of my own future rather than bet on the government.

    As I always say, I look at my FICA payments as charitable contributions to the unverpriveleged.

    "Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
    "And do the cats give a shit? No, they do not. Why? Because they're cats."-from The Onion

    Quote Originally Posted by Mia M
    If a cupcake was tossed at me... well, I'd only be upset if it missed my mouth

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    Default Re: ROTH IRAS.....need help

    ^^^ I don't want this to precipitate a difference of opinion. In terms of future risk, a Roth IRA involves far lower risk of future gov't rules changes than a conventional IRA does, because the contributed money to a Roth was already taxed once.

    I'm also not advocating that one should neglect saving for retirement. However there are lots of other ways to do this that do not involve a qualified retirement plan and do not bring age restriction penalties upon withdrawls into play. From a cynical viewpoint, the 'gains' on Roth IRA contributions as well as ALL money in conventional IRA's really isn't the free and clear property of the 'owner' until they turn age 59 1/2 and/or until they pay penalties and taxes at an earlier age. In my own case I'm perfectly content to sit on some fed + NY tax exempt muni bonds which I own free and clear, trusting in my own discipline rather than the threat of penalties and additional taxes that I won't spend them before I retire.

    But really Mel, if you were 25, would you be willing to take the chance that the government will act in such a way and provide SS benefits to those only without enough retirement savings? What if that doesn't happen at all, and those who didn't save into retirement vehicles are screwed?
    If you look at the demographics, given the US population age profile the gov't appears to have three choices 40 years down the road in regard to Social Security retirement benefits. First, the gov't can keep its promises in regard to benefit levels for everybody, and raise general income tax rates on younger workers to collect 1/3rd of their gross earnings to pay for those retirement benefits, with another 1/3rd of their gross earnings still being collected to pay for other gov't expenses, thus the last 1/3rd being left as take-home pay for those younger workers. IMHO this could never fly because younger workers would either revolt or refuse to work in favor of collecting social welfare benefits vs paying 2/3rds of their earnings out in taxes !~

    Second, the gov't could cut Social Security retirement benefits by some major percentage across the board in order to balance outgoing benefit payments against the current 15.3% rate for Social Security taxes (employer + employee). However, this would likely result in a 40-50% cut in Social Security benefit levels, which would leave a fairly large number of retirees with insufficient income to keep up with their property taxes plus utilities plus food. IMHO this could never fly either because of 'grandma eating cat food in a 35 degree temperature house' news stories.

    This leaves one other alternative. Continue collecting Social Security taxes at the current 15.3% rate (or some marginally higher rate), continue paying promised levels of Social Security retirement benefits to those retirees that don't have significant retirement savings of their own, and reduce or cut off benefits to other retirees who DID save for their own retirement in order to balance the Social Security benefit checks against Social Security tax receipts. IMHO this is the most probable scenario 40 years from now. If this scenario comes to pass, it's entirely possible that every dollar a person has contributed to their own qualified gov't approved retirement plan may actually wind up costing them a dollar in gov't Social Security benefit checks.
    Last edited by Melonie; 07-25-2007 at 04:23 PM.

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    Default Re: ROTH IRAS.....need help

    In the long run, forty or more years long, I expect the government to apply some sort of means test to Social Security. "Privatization" probably won't happen for a number of good and a few bad reasons.

    Having said that, is a Roth a good idea? Probably yes. It provides some investing discipline, it allows a lot more freedom to act than a conventional IRA, it lets the investor take advantage of interest and growth at tax free rates.

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    Banned Katrine's Avatar
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    Default Re: ROTH IRAS.....need help

    No disagreement Mel, just a difference of opinion. Neither of us can predict what happens, and I don't doubt you may be in the money on this one. for MELONIE. for US Gov.
    Last edited by Katrine; 07-26-2007 at 10:21 PM.

    "Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
    "And do the cats give a shit? No, they do not. Why? Because they're cats."-from The Onion

    Quote Originally Posted by Mia M
    If a cupcake was tossed at me... well, I'd only be upset if it missed my mouth

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    Default Re: ROTH IRAS.....need help

    If you are interested in opening an IRA, take advantage of the fact that you are self employed and look into an SEP IRA. The contribution level is higher and it is geared to help the self employed hold on to more of their money.

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    Default Re: ROTH IRAS.....need help

    ^^^ like a conventional IRA, a SEP IRA allows you to contribute pre-tax income to your gov't approved qualified retirement plan. Also like a conventional IRA, the money contributed today is not taxed ... but it will be taxed 20-30-40 years from now when you withdraw it. If you withdraw it before age 59 1/2 under current law you will be taxed plus penalized. Also since the contributed money was not taxed as income when you contribute today, it counts as taxable income in the year which it is withdrawn. Thus the same theory that future demographics will force gov't rule changes leads to a strong possibility that 40 years from now not only will you owe large amounts of income tax on the withdrawn money, but also the level of 'income' resulting from withdrawing the money 40 years from now will disqualify you from receiving gov't retirement program checks.

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    Default Re: ROTH IRAS.....need help

    would a Target-dated mutual fund be a good Alternative to an IRA / Roth IRA?

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    Default Re: ROTH IRAS.....need help

    Quote Originally Posted by thefrog View Post
    would a Target-dated mutual fund be a good Alternative to an IRA / Roth IRA?
    Are you aware that you can purchase a target-dated mutual fund within a IRA/Roth IRA?

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    Default Re: ROTH IRAS.....need help

    wow, very helpful information!! thank you everyone!! I was under the impression that one was able to get the money after 10 years or so. Maybe its not the investment option I was looking for after all.....any particular investment option favored by strippers??

    again thank you!
    <3SPAM

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    Default Re: ROTH IRAS.....need help

    How does one convert their funds from a traditional IRA into a Roth IRA? I've been contributing to a traditional IRA for a few years now, but I'd rather pay taxes to convert $ into a Roth IRA. I have my IRA set up with Ameritrade. I'd like to be able to trade on the US and international markets. Ameritrade services are not expensive. I've heard opinions on Etrade, Fidelity etc. on this board. Your opinion on which brokerage firm is better will be appreciated.

    So do I understand it correctly that if you don't have enough funds in a retirement account when you retire, but instead have your money invested in stocks, bonds, etc. in a regular brokerage account, you are more likely to get SS checks from the government? Or is it possible that the government will be checking all of the funds you have including real estate? And if you have "enough" money saved in different vehicles, you will be facing a chance not receiving SS down the road?

    Thank you.

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    Default Re: ROTH IRAS.....need help

    Quote Originally Posted by Adelina View Post
    So do I understand it correctly that if you don't have enough funds in a retirement account when you retire, but instead have your money invested in stocks, bonds, etc. in a regular brokerage account, you are more likely to get SS checks from the government? Or is it possible that the government will be checking all of the funds you have including real estate? And if you have "enough" money saved in different vehicles, you will be facing a chance not receiving SS down the road?

    Thank you.
    As it stands today, there is no means test. So, if you retire now, you can be a billionaire and still draw social security. Subject to one provision, if you continue to earn income from a job, as opposed to draw retirement benefits, you social security benefits may be reduced. It is my expectation, and nothing more, that in forty years or so, the government will have to introduce some sort of means test or impose onerous taxes on the people who are working. As I do not think major tax increases are likely and I do not think the federal government will allow social security to collapse, the only option I see is a means test. Personally, it is my plan to have so much saved away for retirement that I will not qualify for social security, or need it.

    XOXO
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    Default Re: ROTH IRAS.....need help

    So do I understand it correctly that if you don't have enough funds in a retirement account when you retire, but instead have your money invested in stocks, bonds, etc. in a regular brokerage account, you are more likely to get SS checks from the government? Or is it possible that the government will be checking all of the funds you have including real estate? And if you have "enough" money saved in different vehicles, you will be facing a chance not receiving SS down the road?
    Again, this entire subject is totally based on speculation as to what rule changes may or may not be necessary or politically palatable 20-30-40 years from now.

    Current rules say that withdrawing any money from a gov't sanctioned qualified retirement program before age 59 1/2 triggers substantial financial penalties being due to the IRS on top of the taxes due on the withdrawn money. It is doubtful that this age will ever be dropped, and the odds are pretty good that the age will be raised (as will the 'retirement age' when one becomes eligible for Social Security benefits)

    As to a future gov't rule change which will institute a 'means test' i.e. a current income and/or asset based Social Security eligibility formula, given the demographics which already exist it is my own opinion that such a 'means test' will definitely become part of the Social Security benefit check formula by 2018 at the latest, as this is the point where Social Security's net cash flow i.e. taxes on workers minus Social Security checks paid out will go into the red.

    There is already an income test on retirees which says that for every dollar a retired person earns above a certain gov't set threshold they will lose 50 cents out of their social security check. A 'means test' would count assets rather than income, and would reduce the size of social security checks potentially based on the value of the property the retired person owns, the value of their retirement funds, the value of their other investments etc. In all probability, the only types of assets which are likely to slip under this future 'means test' would be offshore assets or commodity assets, as US based brokerage accounts / bank accounts / retirement accounts etc. are already an open book to the IRS and thus to the Social Security Administration. By commodity assets I'm referring to gold, silver etc. which are currently not subjected to the same IRS paper trail as stocks / bonds / mutual funds when they are bought and sold.

    Of all of the assets that might be counted against a future retiree in terms of reducing the size of Social Security checks, the value of their home is probably the LEAST likely asset to be factored in - for obvious political reasons. This in fact may lead to another housing bubble 10 years from now as retiring baby boomers shift their stock / bond / mutual fund assets back into real estate in order to stop their Social Security checks from being cut.

    Also in my own opinion, the tax-deferred gov't sanctioned qualified retirement accounts i.e. conventional IRA's, SEP IRA's, 401k's et al, are the most vulnerable to a future 'means test'. This is because the money in these sort of accounts has been allowed to accumulate thanks to the good graces of the US gov't and is not really the property of the account holder - because that person has NOT YET paid taxes on any of the contributed money or on the interest / dividend earnings stemming from that money. From that standpoint, since money contributed to Roth IRA accounts has already been taxed before it is contributed, the gov't has much less leverage in regard to future changes in tax rates or rule changes which would affect withdrawn money.
    Last edited by Melonie; 07-26-2007 at 04:11 PM.

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    Default Re: ROTH IRAS.....need help

    Quote Originally Posted by Adelina View Post
    How does one convert their funds from a traditional IRA into a Roth IRA? I've been contributing to a traditional IRA for a few years now, but I'd rather pay taxes to convert $ into a Roth IRA. I have my IRA set up with Ameritrade. I'd like to be able to trade on the US and international markets. Ameritrade services are not expensive. I've heard opinions on Etrade, Fidelity etc. on this board. Your opinion on which brokerage firm is better will be appreciated.
    Stick with Ameritrade, call them up and tell them you want to convert to a Roth and they'll walk you through the process. Keep in mind anything you convert will be taxed as income in the year that it is converted (so you may need to plan ahead).

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