Question

Peter is a 40-year-old average income earner. He is ready to start planning for retirement, and plans to make the maximum possible contribution to an IRA, which is currently $5,000 per year. Because he still has 25-30 years until retirement, Peter wants to invest most of the contributions to the IRA in higher risk securities. His hope is that, when the economy is strong, he�ll make some large gains on the account. At this point, which type of IRA would be best for Peter, a Traditional or Roth IRA? Explain your reasoning using complete sentences.

Answer 1

@wolfe8

Answer 2

@Luigi0210

Answer 3

@amistre64

Answer 4

Sorry I never learned accounting(or what this is). Maybe you can wait for someone else to help. Good luck.

Answer 5

@jim_thompson5910

Answer 6

@wolfe8 thanks

Answer 7

@Mertsj

Answer 8

@hartnn

Answer 9

@ganeshie8

Answer 10

@Callisto

Answer 11

@Zarkon

Answer 12

@zepdrix

Answer 13

@radar

Answer 14

@Luigi0210

Answer 15

@whpalmer4

Answer 16

@Compassionate

Answer 17

A Roth IRA doesn't get you a tax deduction for the contributions, but the earnings grow tax free and you don't pay tax on the withdrawals after retirement. A traditional IRA gives you a tax deduction for the contributions at the time you make them, and the earnings grow tax free, but when you withdraw the money after retirement, you are taxed on it. The idea is that you are hopefully in a lower tax bracket at that point.

Answer 18

thanks @whpalmer4

Answer 19

I would say roth ira since theres no penalty for withdrawals
but im not 100% sure
i can show you my notes from when i take tax last year...

Answer 20

@jayz657 can you please?

Answer 21

its not much but here

Traditional IRA:
A taxpayer must have earned income in order to contribute to an IRA. The annual contribution is limited to the lower of 5,000 or earned income. However, taxpayers aged 50+ can make an additional 1,000 contribution. Contributions are potentially deductible if MFJ.
- For IRAs, contributions in excess of 5,000 can be subject to a 6% penalty. - Death/disability
- If withdrawals are made in the form of annuity payments over the course of the taxpayer’s life
- For medical expenses exceeding 7.5% of AGI
- For first-time home buyers or for certain educational costs
- Withdrawals made prematurely may be subject to 10% penalty; generally, withdrawals cannot be made before the age of 59½. However, penalty free withdrawals can be made under certain conditions:

Roth IRA: Contributions are not deductible, however deductions after age of 59½ are not taxable. The maximum contribution is limited to compensation but cannot be greater than 5,000 [6,000 for 50+], reduced by any deductible contributions to other IRAs.
- Contributions to IRAs can be withdrawn at any time without penalty, but any earnings made from the IRA are taxable if withdrawn prematurely.
- Withdrawals of contributions (rather than earnings) can be made anytime without penalty
- Non-taxable withdrawals cannot normally be made during the first five years that the account is in existence
- Nontaxable distributions may be made prior to the TP reaching 59 ½ due to death, disability or to purchase of first home. *TPs are not required to take distributions after reaching age 70 ½.
The limitations on the amounts that may be put into these accounts
- 5,000 maximum contribution, additional 1,000 for individuals aged 50+
- In order to make a contribution, you must have earned income.

Answer 22

thanks @jayz657

Answer 23

your welcome
the numbers are from last year, it might be different this year just want to let you know

Answer 24

Also worth noting, if the taxpayer has heirs and sufficient retirement savings that he may not need to tap the IRA is that a Roth IRA has no mandatory distributions in retirement, and so the whole thing can be passed on to a much younger heir tax free. A traditional IRA requires you to take regular distributions in retirement.

Answer 25

He should go with the Roth because he can put after tax dollars in it and then the gains will not be taxed unless Congress changes the law. The Roth IRA was a vehicle the corrupt members of Congress created for themselves. And since taxes are certainly not going to go down, it is better to pay them now instead of when you take the money out.
The theory of a traditional IRA is that you don't have to pay the taxes now and your income will be less when you take the money out so your tax rate will be lower but everyone knows that taxes ALWAYS go up. Especially when the government is spending $800,000,000,000 more per year than it is taking in.