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Should I open an IRA if I will get a pension and have a 401(k) already?

  • Some of the online retirement projectors have suggested I open a Roth IRA. I'm wondering if it would be a little "retirement savings overkill?" - My wife & I are both in our mid-upper twenties. - We have a modest amount (5 digits) saved in 401(k) type accounts now. - I am a municipal employee and expect to receive a pension of about 55% of my final salary. - We contribute 6% of our earnings into 401(k) type accounts. Is there any benefit or reason to also open a Roth IRA at this time??

  • Answer:

    The nice thing about a Roth IRA is that the earnings that it grows between now and age 55 can be withdrawn without paying any taxes on the deposit and it's later growth. Also, when you reach age 70, there is no required minimum distribution, so you don't need to withdraw it but can let it grow for a really long time, taking advantage of compounded interest. The other nice thing is that depositing the money now allows for a long time to grow, and it will be there when you need it if you can't make big deposits when you have higher expenses (such as children). Getting it in now will give you the flexibility to take a pause with contributions later if needed. The downside is you can only participate while you make a modest amount of money, so you may lose an ability to contribute as you get older and earn more (you don't lose the money you already put in - but access to adding more gets cut off as you earn more). And, it ties up cash you might use for other needs such as a house or a car. If you are getting a match on the 401k contribution, keep doing that because it is free money, but if you have any extra cash to spare consider opening a Roth. They are great. There are two websites with very good IRA and tax advice. see www.taxgirl.com and www.irahelp.com. The only reason I would suggest not opening a Roth is if you are carrying credit card debt. That typically carries such a high interest rate that it is better to pay that off than to fund a Roth. Good luck.

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You are going to need 3 million to retire in 45 yrs, maybe more. It is best to spread the risk with different vehicles. I personally would open the ira. If you and spouse have the potential of having a combined income of 150k somewhere in the future then the Roth is not for you. Be a bit leary on that municipal pension. Many municipalities and unions have shafted retirees, with changes in pension such as age of starting to collect 55 to 62, amounts, medical coverage.

Ariaread

There sure is! Your Roth IRA will not be taxed. You can invest in better investments than your 401K. If you really need the money you can take you contributions out of a Roth IRA with no tax implications. Perhaps you have a 401K. A nice option is to put a percentage of your overtime, extra commissions, profit sharing or bonus money into an IRA. Your money can really add up over time.

Daddy Paul

Yes, there is benefit if you can afford to contribute to a Roth. You shouldn't "put all your eggs in one basket" by depending too heavily on that public sector pension. You may or may not keep the job and the retirement benefit could be cut. The public sector is currently undergoing layoffs and benefits cuts - expect that trend to accelerate in the future. Do not, however, use an IRA as a simple savings account for near-term goals; it's for retirement.

rotflol

There is no such thing as retirement savings overkill. So many unexpected expenses and the the possibility of huge deficits and hyper-inflation with the current administration's fiscal policies. If you can afford to save more for retirement and do it in a tax advantaged account, you should take full advantage of it. Also, saving more is a great way to discipline yourself to li within your means. Spend less than you earn. This habit will pay you huge dividends in the future. Learning to live without a little more now will make your retirement so much more comfortable. Good luck.

David M

ROTH money is after tax contributions, so your earnings only are tax deferred. Check your 401K plan first, that may have a ROTh option available as well and you can avoid additional fees from the seperate IRA account. Depending on your tax bracket, you may be better off maximizing pre-tax contributions.

farbmans

You cannot withdraw from a 401K without a penalty unless you are over age 59 1/2 because the taxes are deferred. Roth accounts are for after tax money. Since you've paid tax on Roth deposits, you can withdraw them whenever.

Liam M

Personally, I would have nothing to do with Irish terrorists.

R MOORE

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