IRA Help for a Professional Poker Player
 

First of all... why the hell would I want to open an IRA? I tried to ask this is Internet Gambling and everyone was running around with their head cut off.

I'm not willing to concede that as a self-employed individual I will be making less between 60-70 years of age than I am now. It's definitely not a certainty.

Also, if someone can convince me to open an IRA and why, what is the best kind to open?

I make between 150-250k per year. I don't own a home (yet). My savings are low for my yearly earn. I maybe have 40k in liquid assets as of now.

Help?

Edit: I tried to search. That was useless.

Also, why wouldn't I want to just take the money and invest it on my own. Then I don't have to worry about some stupid 10% early withdrawal fee in case I need the money?

Re: IRA Help for a Professional Poker Player
 

I'm thinking of just putting into a taxable account and paying a capital gains tax of 15% when I withdraw it.... am I correct in this thinking?

What about paying taxes on the gains each year.. is this an option?

Re: IRA Help for a Professional Poker Player
 

[ QUOTE ]
I'm thinking of just putting into a taxable account and paying a capital gains tax of 15% when I withdraw it.... am I correct in this thinking?

What about paying taxes on the gains each year.. is this an option?

[/ QUOTE ]

In taxable investment accounts you have to pay the taxes every year. As a professional poker player, you will have to pay at the highest rates. If you make $200k+ per year you should contact a reputable accountant and look into SEP-IRA's and Individual IRA's. The benefits are that you'll be able to save up to $40k per year, pre-tax (so you pay less taxes), if you file correctly.

Once in those accounts any gains will accumulate tax free until you retire. Of course you'll have to pay the 10% penalty to withdraw before age 59.5. At your income levels it's worthwhile to max out your IRA/401k, and save some more on the side for houses and emergencies.


Let's say you can earn 10% investing in the stock market, but pay 2% per year taxes in a taxable account. The difference between between getting 10% and 8% turns $40k into $270k in 20 years, instead of 186k. Now imagine how much money you'll have if you save $40k a year in your SEP-IRA for 20 years? I don't have time to do the calculation, but it's a lot...

Re: IRA Help for a Professional Poker Player
 

Bottom line, you want to put money into retirement accounts to take advantage of the significant advantage of compounding your retirement savings tax free over your working life.

Every extra $100/month that you can invest over 40 years (assuming a 10% return) will be worth about 650K to you!

Think of it this way... Would you rather build your poker bankroll on a rakefree table for as long as you could (knowing that in 40 years you'd have to go back to a raked table), or on a table with standard rake structures?

Recent IRA threads...

IRA/401K Question

SEP IRA Tax Question

Other links...

Money - The IRA Advantage

Roth IRA advatages

Yahoo Finance IRA Special edition

Roth IRA Web Site

About.com Retirement planning

Investopedia retirement center

Re: IRA Help for a Professional Poker Player
 

Thanks for the links, I'll check them out.

I definitely make too much for anything but a traditional IRA, correct?

Re: IRA Help for a Professional Poker Player
 

Question:

When you deduct your IRA contribution from your taxes, is that done in the same place as your standard deduction (meaning I can't take a standard deduction to enjoy the full benefits) or somewhere else?

If it goes in your standard deduction, I may not want to put my money into an IRA, yet, as I don't itemize ($5000 standard vs $160 or whatever I actually have to deduct).

Re: IRA Help for a Professional Poker Player
 

The IRA deduction comes before AGI on your tax return. Your standard deduction will not be touched because of an IRA deduction.

Re: IRA Help for a Professional Poker Player
 

I would just add that retirement plan contribution limit for 2005 is $42k and will be $44k for 2006.

Also, if you have a retirement plan that allows early distributions, there are ways to get the money out before 59.5 without paying the 10% penalty. The easiest way is through susbstantially equal payments that last for at least 5 years. There is also a financial hardship provision that I have seen used. You also don't have to take the money out until the year after you turn 70.5, so you have a very long time period to push off paying the tax on the money in the plan.

Re: IRA Help for a Professional Poker Player
 

New question:

What about indivial 401k's?

Seems like another viable alternative that I could borrow against.

I need to make an appointment to see an accountant.

Re: IRA Help for a Professional Poker Player
 

[ QUOTE ]
I need to make an appointment to see an accountant.

[/ QUOTE ]

Definately recommended, likely along with a financial planner. Also, given your web site, it may make sense to be operating under some type of corporate umbrella, which opens additional tax saving opportunities!