Comments on: Traditional vs. Roth IRA: An Introduction and Comparison

By: Flexo

Flexo — Wed, 11 Mar 2009 21:15:17 +0000

Only if your future distribution from your IRA constitutes your only income each year. If you still have a significant level of income when you begin drawing on your IRA, then the comparison between today’s marginal tax rate and the future effective tax rate breaks down.

Nevertheless, future tax rates are nearly impossible to predict, particularly if you’re looking forward 30 years or more like many people who are just starting with IRAs.

By: Flexo

Flexo — Wed, 11 Mar 2009 17:54:56 +0000

Rassah: Perhaps they are keeping it quiet. If you look where Vanguard describes its IRAs, the website claims:

Pay no account fees if you sign up for electronic delivery of statements and other important documents. We'll send you an e-mail when the information is available.

By: Rassah

Rassah — Wed, 11 Mar 2009 17:49:26 +0000

Woah, good to know. For some reason I couldn’t find anything saying that on their application page.

By: Flexo

Flexo — Wed, 11 Mar 2009 17:23:11 +0000

You can avoid Vanguard’s $25 annual maintenance fee by accepting electronic delivery of statements and prospectuses (prospecti?). I’ve never been charged a fee at Vanguard (that isn’t wrapped into the mutual fund price).

By: Rassah

Rassah — Wed, 11 Mar 2009 16:09:04 +0000

Since IRAs are limited in the amount you can contribute, as opposed to investment funds I use for dollar-cost-averaging, I’m trying to go the cheapest route: I opened my IRA with Sharebuilder (which I use for my other investment needs already, and which works great with an ING Direct account). No minimum deposit, no annual fee (Vanguard’s $25 annual is already 0.5% of the $5,000 you can invest). Then for my IRA investment, I just deposit cash (as much as I can at the beginning of the year), and as soon as it hits $5000, use it to buy a single Vanguard stock index ETF (VTI, since I have a long ways off till retirement). It’s only a $4 fee to buy the ETF using their “automatic investment” option (unless I split it up into 2 or more purchases), and management fees are much smaller compared to mutual funds. Also, if something happens and some year I can’t make any contributions, I won’t be charged another $25 for just having my money sit there.

Downside, of course, is that Sharebuilder doesn’t have access to Vanguard’s mutual funds if you DO want to go that route, which is much cheaper for dollar-cost-averaging.

By: Flexo

Flexo — Wed, 11 Mar 2009 14:47:52 +0000

Joe and Andrew: You are correct, of course. One wrong word changes the entire meaning. I’ve corrected the article.

By: klerg

klerg — Wed, 11 Mar 2009 14:47:52 +0000

I want to think that Andrew’s right here.

By: Andrew

Andrew — Wed, 11 Mar 2009 14:37:56 +0000

“When you take a distribution from your Roth IRA after you’ve retired, you will only pay tax on your capital gains, of which the plan is to have many.”

I’m no expert, but if you’re 59 1/2 and have had the account for more than 5 years, don’t you get everything out of our Roth IRA tax free? That’s the whole point, you put after tax money in and all of your growth comes out tax free later. Have I been completely misunderstanding the differences between Traditional or Roth or is Flexo wrong?

By: Joe

Joe — Wed, 11 Mar 2009 14:36:40 +0000

“When you take a distribution from your Roth IRA after you’ve retired, you will only pay tax on your capital gains, of which the plan is to have many.”

Actually, as long as you meet the basic requirements of the Roth (at least 59 & 1/2 years old and had the account for 5+ years), the capital gains are tax free. Otherwise, there’d be little difference between a Roth and a regular non tax-advantaged account.

http://en.wikipedia.org/wiki/Roth_IRA

By: dogatemyfinances

dogatemyfinances — Wed, 11 Mar 2009 14:25:35 +0000

“lower tax rate now than you will when you retire” WRONG

Lower MARGINAL tax rate than your EFFECTIVE tax rate than you retire. Big, big difference.

By: The Weakonomist

The Weakonomist — Wed, 11 Mar 2009 12:32:07 +0000

Vanguard plays host to my Roth IRA and I have been very pleased with them so far. I’m still quite young and do not yet have a traditional IRA but I do have a 401(k). The Roth is my primary account because I expect to pay more taxes in the future than I do now.

If I ever move companies I will set up a traditional IRA with Fidelity foe to rollover. I like vanguard but I always like to diversify my accounts across institutions.