Personal Finance 101 for Young Lawyers Forum

[Wanderingdrock]

Generally the argument in favor of traditional is that you're probably in a higher tax bracket in your earning years than during retirement, so you're getting the advantage of that arbitrage. However, if you think you're going to reach retirement age rich enough to have significant taxable income, then maybe paying taxes on your income now (particularly as a junior associate) makes sense, with the freedom and flexibility of having tax free money in a Roth account later.

Could you elaborate? What are the break-even points here? At this risk of sounding financially illiterate, I have no sense of retirement age/annual expenditure and what it means in terms of what account to use.

There isn't really a single correct answer to this question, in part because tax brackets change annually, are different for married vs. single people, etc. So your answer is going to be different depending on whether you want to retire in 20 years or 30, whether you're single but hope to be married when you retire, whether your spouse has or is going to have income, whether you think major tax legislation is likely to become law before you retire, etc. You kind of have to ballpark it no matter what, given all of those factors.

But you can look up the tax brackets now, see which one you're in, and kind of guess what you think you'll be in when you retire and begin pulling funds from your retirement accounts. Chances are, though, that you'll put yourself in the best situation by maxing traditional contributions and then doing Roth.

[The Lsat Airbender]

Based on your lazy original question, lack of initiative in doing any basic research before asking others for help, and failure to comprehend fairly simple concepts, I’d say you should do traditional. On top of being the correct answer for 90%+ of people, it is surely the correct response for you, as your earnings have likely already peaked.

Oh for fuck’s sake

It's right, though, tbf. Associate salary generally puts one way into a tax bracket where Traditional is better. You can always do the math to see if your situation is different, but you really do have to do the math yourself because there are so many assumptions

[Anonymous User]

Based on your lazy original question, lack of initiative in doing any basic research before asking others for help, and failure to comprehend fairly simple concepts, I’d say you should do traditional. On top of being the correct answer for 90%+ of people, it is surely the correct response for you, as your earnings have likely already peaked.

Oh for fuck’s sake

It's right, though, tbf. Associate salary generally puts one way into a tax bracket where Traditional is better. You can always do the math to see if your situation is different, but you really do have to do the math yourself because there are so many assumptions

Not questioning the conclusion, just the asshole delivery. (accidental anon, this is nixy)

[NyuIwantu]

I want to do a backdoor Roth IRA for the first time before the end of this year. I currently have a Roth IRA but no traditional IRA.

Am I correct that the steps are:

1) Open a traditional IRA
2) Fund it up to the limit with post tax money
3) Do not invest it
4) Transfer the money from the existing traditional IRA to the existing Roth IRA?

For step 4 is it a transfer or do I need to convert the account and end up with 2 Roth IRA accounts?

Thanks!

[sccjnthn]

I use Vanguard for my Roth and these are the steps I follow. I believe there's a convert button in the IRA-not a transfer button-but each year I have to look up the procedure. Vanguard does not create two separate ROTH IRAs, but transfers the money into my existing Roth IRA account.

[Wanderingdrock]

I want to do a backdoor Roth IRA for the first time before the end of this year. I currently have a Roth IRA but no traditional IRA.

Am I correct that the steps are:

1) Open a traditional IRA
2) Fund it up to the limit with post tax money
3) Do not invest it
4) Transfer the money from the existing traditional IRA to the existing Roth IRA?

For step 4 is it a transfer or do I need to convert the account and end up with 2 Roth IRA accounts?

Thanks!

You're correct. But when you "convert" it, you're converting the funds, not the account. I have a traditional IRA and a Roth with the same broker, and do the backdoor every year, and every year I still have a traditional IRA with the same account number and $0 in it after I complete the process.