Comments on: Roth IRA and Flexible Spending Account deadlines

By: Robert Espe

Robert Espe — Thu, 17 Dec 2009 15:58:04 +0000

The sweetness of a ROTH is not about tax savings on the principal, it’s that the earnings are completely tax free. Earnings in a traditional IRA will be taxed, even if you are in the lowest bracket (and seriously, how many of you think you will be living off of less than $8500/year in retirement). If you have no IRA, its a no brainer, get a ROTH, you probably have a tax deferred 401k already anyways. If you are close to retirement and have a traditional IRA, it pays to run the numbers before converting.

By: Mike Piper

Mike Piper — Thu, 17 Dec 2009 15:19:00 +0000

Yeah, commutative property of multiplication tells us that if tax rates don’t change, it’s irrelevant (in terms of ending value) whether you pay, say, a 25% tax now or a 25% tax later.

The primary decision is simply whether you expect to be in a higher or lower tax bracket when you withdraw the money than you’re in now.

Or, if you admit that you don’t have a clue, then you may want to “tax diversify”…which means do a little of both.

By: Matt Jabs

Matt Jabs — Thu, 17 Dec 2009 15:16:49 +0000

Good info. I suspect the answer to Sam’s question is that… it depends on your situation.

By: Undebt

Undebt — Thu, 17 Dec 2009 14:52:06 +0000

Samurai-

It works out roughly the same if you’re in the same tax bracket while contributing vs your tax bracket after retirement. If you’re in a high tax bracket now, and will be in a low one later, the Traditional IRA usually makes more sense.

However, with all the deficit spending going on now, there are those (like me) who think that taxes are going to be going up dramatically over the next decade, and being semi-retired without a huge amount of earned income, I expect my tax bite to be much higher down the road. The Roth makes better sense to me in that scenario.

Ultimately, you pays your money and you takes your chances…

By: Matt Jabs

Matt Jabs — Thu, 17 Dec 2009 13:50:37 +0000

Ha!… fake tree… I don’t think so!

I only do real Christmas trees. Beyond that, we always cut down a fresh tree as opposed to buying a pre-cut. They last longer, but the entire experience is what we enjoy. Every year, the day after Thanksgiving day we cook up some homemade hot cocoa, stick it in a Thermos, and head out to our favorite Christmas tree farm. We love it.

Some things are worth paying for.

By: Financial Samurai

Financial Samurai — Thu, 17 Dec 2009 06:56:53 +0000

Matt – Is that a real Christmas tree in the background? If so, how much did it cost? Thinking about getting me a fake one so it’ll last forever.

Anybody ever do this calculation on paying tax up front or paying tax later (trad/roth)? Doesn’t the calculation on return come out the same for the most part since it’s just a re-arrangement of the equation?

By: Matt Jabs

Matt Jabs — Thu, 17 Dec 2009 02:45:08 +0000

I appreciate this info Mike, I did update the post w/a note reflecting the actual IRS deadline.

By: Matt Jabs

Matt Jabs — Thu, 17 Dec 2009 02:17:11 +0000

Solid info Jonathan, I just downloaded it & will read parts of it over the coming weeks. Fun stuff!

By: Jonathan

Jonathan — Thu, 17 Dec 2009 01:23:28 +0000

IRS Publication 17 is a book every household should take a look at. It gives information on virtually every subject. Don’t let its length scare you, just look at the sections that pertain to your situation. Remember, for many of us, taxes will be our biggest liability during our lives. You can get Pub 17 at the IRS website.

http://www.irs.gov/app/picklist/list/publicationsNoticesPdf.html

By: Jonathan

Jonathan — Thu, 17 Dec 2009 01:20:16 +0000

The max contribution is $6,000 if you are 50 by December 31, 2009.

By: Craig

Craig — Wed, 16 Dec 2009 20:13:50 +0000

I am trying my best to max out my IRA for this year.

By: Paul @ FiscalGeek

Paul @ FiscalGeek — Wed, 16 Dec 2009 17:36:35 +0000

Well done Matt, video makes me feel like I know you a little better. Some day we’ll meet if not on the banks of the Columbia while you are in your canoe. The FSA is very handy, my employer actually auto reimburses any FSA expense so when I had a painful trip to the dentist earlier in the year, I received my FSA money back in my checking account the following week. That’s efficiency I like. I do wish it would roll over and something I’m thinking about if I moved to an HSA model.

By: Matt Jabs

Matt Jabs — Wed, 16 Dec 2009 16:52:17 +0000

Go for it Kyle. Thanks for the link.

By: Kyle

Kyle — Wed, 16 Dec 2009 16:39:48 +0000

@Peter I wrote a guest post over at Mrs. Micah discussing Spending accounts, both the Dependent care and Health Care types. If Matt doesn’t mind here is the Link: http://www.mrsmicah.com/2009/11/12/what-are-flexible-spending-accounts/

By: Peter

Peter — Wed, 16 Dec 2009 15:56:54 +0000

I’m thinking about signing up for the FSA plan at work this year -we’ll be having a few expenses this year with the baby on the way, and I thought this might be a way to save a little money. I’d be interested in a full post on FSAs. Get on that would you?

By: Mike Piper

Mike Piper — Wed, 16 Dec 2009 12:57:08 +0000

Two quick additions:

You can contribute to a Roth for 2009 all the way until April 15, 2010. (That said, I’m all for doing it earlier rather than later!)

Also, contributions that you make to a Roth can come out free from tax and free from penalties at any time. That means that if you think you can afford to make a Roth contribution, but aren’t quite sure, go ahead and do it anyway. Then just keep it in something very safe (like a money market account), where it won’t lose value.

Then, once you find out that you didn’t (and aren’t likely to) need the money in the near future, you can move it into some riskier mutual funds. Or, if you do end up needing the money, you can just take it right out of the account, no problems.