Time for a roundup. Keep in mind, as I mentioned at the launch of this site, the Roth IRA was introduced in 1998, 14 years ago, and is just one choice for holding your retirement assets. And retirement savings is just one aspect of your financial life. So, it’s pretty amazing that the discussion of Roth hasn’t slowed at all, in fact, it’s been growing. The articles offering different spins on the Roth IRA are coming out faster than any one reader can keep up with them. I can’t say if I’ll plan a weekly roundup just yet, so for now let’s just start with some recent excellent reading.
The Wall Street Journal published Inherited IRAs: a Sweet Deal / A Generous Benefit for Families Survives a Senate Challenge. This is a great article that discusses the benefit of inheriting an IRA along with some of the pitfalls. What made this article so timely for me is that I was answering a comment on my article Inheriting or Bequeathing an IRA and while I was pretty sure I was correct, I thought I’d send an expert cited in the WSJ article a request to verify my accuracy. M.D. Anderson, a tax preparer in Chandler, Ariz who has his own site InheritedIRAHell.com was kind enough to support my advice. I’ll discuss this in full in a JoeTaxpayer article later this week. Thanks again, M.D.
You opened a Roth IRA, now what? How do you actually start investing to make Roth work its magic? Wealth Informatic$ answers this for you. A great overview of different index based portfolios. When you look at what a “pro” will charge you to manage your money, this article alone can save you a small fortune over time. A great read.
Who Should, and Should Not, Convert a Traditional IRA to a Roth IRA? Ken Faulkenberry of Arbor Investment Planner and AAAMP Blog offers some great ideas here. Ken offers a list of when converting makes good sense, and I’d bet that of the seven situations mentioned at least two or three will be new to you. And when you employ one of these strategies, take a moment to thank Ken, and remember to tell him Joe sent you.
At Nerd’s Eye View, Roth vs Traditional: The Four Factors That Determine Which Is Best. Michael Kitces’ article gets it right, with one caveat from yours truly: Michael talks about “Current vs Future Tax Rates.” I’d clarify and add that one has the opportunity to convert any year their income has dropped or they are in a lower bracket for any reason. You’re single and making $75K? You’re in the 25% bracket (most likely). Marry a stay at home mom, and you drop to 15% until she goes back to work. That’s the time to plan to convert if you have the funds to pay the tax on the converted sum.
And to wrap it up this week, Rob Berger at Doughroller wrote 401k vs IRA–Where Should You Save for Retirement? Rob’s article focuses on the Bogleheads’ priorities for investing.
1. 401k/403b up to the company match
2. Max out Roth IRA
3. Max out 401k/403b
4. Taxable Investing
I think this order ignores the investor’s current tax bracket and may not put the funds to their best use. The priority is one that’s worth discussing in some deep-dive details later this week. Until then, enjoy the week. Don’t forget, make that IRA deposit before your broker closes on Tuesday, it’s tax day already folks!