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#1
12-03-2005, 06:30 PM
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Re: Why would I want to open an IRA?
You get to CHOOSE when you want to pay the taxes! There are two kinds of IRAs.
The traditional thinking is that you want to defer taxes now, while you have a relatively high income, and then withdraw the money after you retire to a more modest way of life and fall into a lower tax bracket. On the other hand, if you are young / poor / already in a low tax bracket now and have aspirations of being rich later... or if you are a cynic who thinks tax rates are going to be significantly higher in 30 years than they are now ... you open a Roth IRA instead of a Traditional IRA, and make after-tax contributions now, so that you can withdraw both principal and interest tax free later. 
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#2
12-03-2005, 07:18 PM
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Re: Why would I want to open an IRA?
[ QUOTE ]
Okay, I'm doing my taxes for '05 and I am trying to understand the logic behind an IRA. Why would I want to put 40k (I think the maximum is) into an IRA? Sure, I don't have to pay taxes on it now, but I will when I withdraw it, correct? So what's the point? I either invest it on my own, pay taxes on the principal now, and pay taxes on the interest as I go along or I pay all the tax later (but I can't touch the money for almost 40 years). I can't see why anyone would want to do this unless their company was matching contributions. As a self-employed person, I don't see the point. Try to convince me otherwise? [/ QUOTE ] With a traditional IRA, the main advantage for some like you (that seems to make a lot of money), is that if you are in the highest tax bracket today, you can invest to get maximum tax savings today, and then when you retire, or if your income drops significantly when your older, you can withdraw from the IRA at a reduced tax rate. For example -- when you invest now you save 35% on taxes. When you make withdrawals when your older you might only have to pay 20% tax on your withdrawals -- plus the money grows tax free until you make a withdrawal. (i'm not sure on what the tax brackets are -- the numbers i used are just an example).
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#3
12-03-2005, 11:28 PM
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Re: Why would I want to open an IRA?
My only advice is to start investing taxfree as young and as much as possible. The difference between starting to invest tax free at the age of 20 and 30 is incredible. It could be the difference of 2-4 Million dollars by age 60.
If I could drop 40k into an SEP-IRA at a young age I would have done so. Good Luck Scotty O
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