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Old 04-25-2019, 10:28 AM   #1
Half Smoke
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Roth IRA is a Ripoff

Since this is a finance thread I've decided to voice my opinion that a:



Roth IRA is a Ripoff




I will be comparing it to contributing to a regular non IRA account, not a traditional IRA, which is much more complicated to analyze




1. With a Roth IRA you are immediately taxed on your contribution at a level which is the same as your income. So for many (considering an individual return - not much difference than joint) that will be 22% - and many states will get more, for example .....8%. This means if you make a $5,000 contribution at this income level you will immediately owe an extra $1,500. Typically, you will be charged tax when you are fairly young and your income is at or near its highest level

2. A contribution to a regular non IRA account is not taxed in any way

3. You may have to pay penalties on the earnings of a Roth IRA if you withdraw any amount before age 59.5

4. You never have to pay penalties on any withdrawal from a regular non IRA account

5. The Roth IRA's main selling point is that there is no tax when you withdraw after age 59.5. But if for example, you are invested in something where there is very little trading in a non IRA account your yearly capital gains tax is minimal.

.....And when you do withdraw when you are older and either not working or not working much the capital gains tax at the Federal level has been greatly reduced, so you will either have to pay only a minimal amount or zero to the Feds.

.....You will owe state tax on capital gains if you are living in a state that taxes income but if that is all that you owe that is not likely to be much, since your income at least for most when you are in your retirement years is considerably less



So, to summarize, the only real benefit to a Roth IRA compared to a non IRA account is that you can avoid capital gains taxes when you withdraw and they are likely to be minimal with a non IRA account if you actively manage your investment focusing on tax considerations



Against that is the tremendous disadvantage of paying all that tax when you contribute to it




what a terrible, terrible deal





it's possible I missed some advantages of the Roth IRA but I don't think so. let me know if I did
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Last edited by Half Smoke; 04-25-2019 at 10:29 AM.
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Old 04-25-2019, 12:04 PM   #2
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Originally Posted by Half Smoke View Post
......it's possible I missed some advantages of the Roth IRA but I don't think so. let me know if I did
Why wouldn't you trade in a Roth account just like a regular account? When you do and have a gain the account is not reduced by having to pay taxes. Ditto for dividends and interest.

Let's say I have $500,000 in a Roth and you have $500,000 in a regular non-IRA account and we are both retired drawing social security. Surely you know the interplay between taxable income and how it affects the taxation of social security. Surely you know that a Roth is not subject to the minimum required distribution rules either (unless it is an inherited Roth).

A Roth gives you a much greater degree of control over how much income tax you will have to pay. In my view the absolute best investment vehicle you can use. With tax rates surely to increase significantly in the near future to pay for more and more government spending would anybody want to be trapped getting taxable income when they could be getting all their income tax free?
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Old 04-25-2019, 12:23 PM   #3
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what you are saying is true if you are actively trading - and I do realize the title of this topic is Trading - so in that sense my post doesn't belong in with a topic on trading -

but many, particularly with regards to a retirement account use a buy and hold strategy - this is why I believed my OP has some value

this has always been my strategy with index funds

and with the index funds in my non IRA account I pay almost nothing in capital gains taxes

and even when I withdraw sizeable amounts I will pay very little because of a reduction in the capital gains tax (Feds) and very little on my State tax return because at that time my income will be much less than when I was younger

so in comparing my non IRA account to a Roth IRA in my non IRA I'm paying very little in taxes and if I instead had a Roth IRA I would be paying a lot in taxes

but yes, your point is well taken - that if you are actively trading Roth looks better

I prefer my strategy - buy and hold - maybe boring but I pay almost nothing in capital gains, almost nothing in trading costs and I don't have confidence that I can beat the indexes

the vast majority of amateur traders and even a very high % of pro traders cannot consistently beat the indexes
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Last edited by Half Smoke; 04-25-2019 at 12:27 PM.
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Old 04-25-2019, 12:25 PM   #4
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Quote:
Originally Posted by Half Smoke View Post
Since this is a finance thread I've decided to voice my opinion that a:



Roth IRA is a Ripoff


This means if you make a $5,000 contribution at this income level you will immediately owe an extra $1,500.
What? There is no "extra" tax owed.

Roth IRA contributions are made with after-tax dollars. The money has already been taxed, there is not a second tax on top of that.

Roth IRAs are the best accounts to have. You've got this completely wrong.
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Old 04-25-2019, 12:39 PM   #5
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What? There is no "extra" tax owed.

Roth IRA contributions are made with after-tax dollars. The money has already been taxed, there is not a second tax on top of that.

Roth IRAs are the best accounts to have. You've got this completely wrong.

you are correct - I was mistaken - sorry about the wrong info

I misread the info

this might be my worst post ever
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Last edited by Half Smoke; 04-25-2019 at 12:41 PM.
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Old 04-25-2019, 02:49 PM   #6
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Originally Posted by Half Smoke View Post
what you are saying is true if you are actively trading - and I do realize the title of this topic is Trading - so in that sense my post doesn't belong in with a topic on trading -

but many, particularly with regards to a retirement account use a buy and hold strategy - this is why I believed my OP has some value

this has always been my strategy with index funds

and with the index funds in my non IRA account I pay almost nothing in capital gains taxes

and even when I withdraw sizeable amounts I will pay very little because of a reduction in the capital gains tax (Feds) and very little on my State tax return because at that time my income will be much less than when I was younger

so in comparing my non IRA account to a Roth IRA in my non IRA I'm paying very little in taxes and if I instead had a Roth IRA I would be paying a lot in taxes

but yes, your point is well taken - that if you are actively trading Roth looks better

I prefer my strategy - buy and hold - maybe boring but I pay almost nothing in capital gains, almost nothing in trading costs and I don't have confidence that I can beat the indexes

the vast majority of amateur traders and even a very high % of pro traders cannot consistently beat the indexes
I am on the same page with regard to investing using index funds. But that doesn't change math for determining which is best. If a person funded both a Roth IRA and a regular investment account with the same amount each year and invested in the same exact investments the Roth' performance would look like Secretariat in the Belmont compared to the regular account.
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Old 04-25-2019, 06:57 PM   #7
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There's more than one rip off in the financial savings game.

Just ask yourself where all that money goes while it's sitting for years in your 401k etc.........

physically............where does it go?
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Old 04-25-2019, 08:21 PM   #8
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There's more than one rip off in the financial savings game.

Just ask yourself where all that money goes while it's sitting for years in your 401k etc.........

physically............where does it go?
Hopefully you wouldn't just park money in a 401-K, it would be invested in stocks and bonds.
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