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One problem with the Roth IRA is the income phase out limits. If you're single, if you AGI is >117K, you can only contribute some percentage of the $5000 allowe
by briHass 10y ago
One problem with the Roth IRA is the income phase out limits. If you're single, if you AGI is >117K, you can only contribute some percentage of the $5000 allowed for the Roth. If you're >132K, you can't contribute anything. For a married couple, those limits are 184K/194K. Granted, you can reduce your AGI by contributing to a 401K first, which allows you to take $18K off the top.
I know this doesn't affect many, but for the high-paid tech crowd, these limits right around the point in your career where you want to be pumping in money.
- erubin 10y agoIt's true that many tech workers are eventually affected by the contribution limit, but my understanding is that it's essentially always smart to contribute to tax-advantaged accounts while possible.
- rpais 10y agoYou can get around this by contributing to a traditional IRA and then converting it to a Roth. This is easy to do (until law changes) unless you have an existing traditional IRA where you can take a tax hit.
- h4nkoslo 10y ago... And you can roll your trad IRA into your company 401K before doing the backdoor Roth, thus avoiding the tax hit.
- djrogers 10y agoNo - no you can't. Someone has given you some odd and confusing advice.
- h4nkoslo 10y agoI have personally done so. https://www.nerdwallet.com/blog/investing/rollover-ira-to-401k/ https://www.nerdwallet.com/blog/investing/rollover-ira-to-40... http://www.kiplinger.com/article/retirement/T047-C000-S004-moving-ira-assets-into-a-401k.html http://www.kiplinger.com/article/retirement/T047-C000-S004-m...
- ryandrake 10y agoThose are still pretty high limits, well above the median tech salary even in the Bay Area. If you're in "income phase out" territory you're probably not worried about your retirement. The thing I don't like about Roth is that you're contributing with post-tax money during your prime working years--the time when your taxes are probably as high as they will ever be. Especially true as a tech worker where your salary plateaus in your 20s. I'd rather save pre-tax now, and then pay taxes later when I'm 60 and back in the lowest tax bracket.
- brewdad 10y agoMy issue with the Roth is that I don't trust the rules to remain the same in the future. I pay taxes now, before the money goes in, with the promise of tax-free withdrawals. I fully expect that money to become taxable on the back-end at some future time. It might be a lower rate (like capital gains today) or be income-based, but that pot of $ will be too tempting to ignore, I fear.
- djrogers 10y agoSo worst case scenario is that you wind up paying the taxes you'd have paid if you didn't use the Roth? Not really a reason to not use one when it's only a possibility and not a certainty.
- hx87 10y agoIf things get dicey enough that they start taxing Roths, you can bet that they'll tax traditional accounts enough to claw back the original tax deduction plus interest.
- lukejduncan 10y agoJust curious, what are the median Bay Area salaries? I'd think most married couples in bay area tech are above the contribution limit.
- ryandrake 10y agoAccording to PayScale[1] and Glassdoor[2], average/median salary for software engineer in the Bay Area is around $110K. Caveat: Self-reported data and base salary only. 1: http://www.payscale.com/research/US/Job=Software_Engineer/Salary/a5e48575/San-Francisco-CA http://www.payscale.com/research/US/Job=Software_Engineer/Sa... 2: https://www.glassdoor.com/Salaries/san-francisco-software-engineer-salary-SRCH_IL.0,13_IM759_KO14,31.htm https://www.glassdoor.com/Salaries/san-francisco-software-en...