Nishima
Member
Cash: $ 3.00
Posts: 14
Joined: 28 Nov 2006
Location: North Carolina
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| Should I get a Roth IRA? |
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I work for a textile company so, like many others, we are undergoing some "restructuring." Again.
The plant that I currently work at is going to be sold and run as an independant small company. The worst news is that there will probably no longer be a 401k offered. If there is, we were informed that the company will not provide a match.
Right now the company matches 100% of the first 3% I contribute and 50% of the next 2%. Basically, I put in 5%, they put in 4%. I have contributed as much as 12% in the past, and currently put in 8%.
My personal contributions to the 401k are roughly $5000 of pretax money per year. If the company does not provide a match, would a Roth IRA be a better option then since I'm only 29 and the earnings would have a long time to grow and be tax free? Am I even eligible to open a Roth if the company still offers 401k, but does not have a match?
Also, my wife is a teacher so does not have 401k. The state has a retirment plan that takes 6% of her salary...is she eliglbe to open a Roth IRA as well?
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Wed Jan 31, 2007 8:53 pm |
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efflandt
Senior Member
Cash: $ 80.45
Posts: 401
Joined: 25 Apr 2005
Location: Elgin, IL USA
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Having access to an employer retirement plan may affect tax deductable contributions to a regular IRA, but does NOT affect whether or the amount that you can contribute to a Roth IRA. So if you have a 401(k), even if you max out contributions to it (or not), you can still max out a Roth IRA if your income is within eligibility limits.
Note that contributions to a Roth IRA are not tax deductable, but qualified gains are never taxed.
You usually cannot move money from a 401(k) unless you leave that employer (doesn't matter if the employer changes ownership). But if the new owners discontinue the 401(k) you could probably transfer it to a regular IRA. If you convert funds from IRA to Roth IRA you have to pay tax on the converted amount, which is why I am doing that gradually over a period of years to stay under the next tax bracket. And it is best to cover the tax from outside of the converted amount to avoid conversion withholding, which I cover with W-4 withholding adjustment.
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Thu Feb 01, 2007 12:07 am |
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oldguy
Senior Member
Cash: $ 751.85
Posts: 3656
Joined: 21 May 2006
Location: arizona
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The important variable to your decision is your tax bracket - if you are now in a high bracket, you should take the tax break now (401k). If you are in a low tax bracket, you should forego today's tax break, and take the tax break when your retire - Roth. (The match would be nice, but it is not a deal breaker - my 401k was before 'matching' was invented and it still grew to $868,000 at retirement - definitely worth doing).
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Thu Feb 01, 2007 3:39 am |
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