Standard IRA
A standard IRA lets you take the deductions up front , but taxes you when you withdraw the money. People get excited abut the idea of tax-free IRA money. It is not tax free. It is tax deferred. People live the rest of their life with “I can not get rid of my IRA, I would have to pay taxes.”
The advantage is they allow tax-free compounding. If your fund’s investment portfolio grows in value (a huge if) you are not taxed until you sell the portfolio and start living on the income. This assumes the tax code isn’t re-written to change the rules. Why do you assume this? I do not like standard IRA’s.
ROTH IRA
The ROTH IRA is for after-tax investing. The goverment promises to let you take that money out when you retire without paying any further taxes. This is a better deal. Assuming, of course, this promise is not broken. It’s better to earn future profits tax-free than to tax-defer your investment principal and profits.
Your two benefits of ROTH IRA are as follows:
1- You can make your own investment decisions.
2- You can avoid income taxes on future profits and deduct investment losses.
Peter Fortunato is a master real estate investor. He invested $2,000 in a Roth IRA in the late 90’s. It’s worth about $1 million, tax-free, today. He used real estate. He gives seminars that discuss how he did this. The next one is March 28th in Atlanta. Details are located here. It is not easy and the laws are strict.
You will need to be in control of your IRA. This can be done legally. Rob Clayton is a CPA that specializes in this. You can visit his site here. Pay for his advise. DO NOT think you can do this on your own.
Retirement Questions
Things to think about:
1- How many years until I retire?
2- Rather than put my money into an IRA, what else could I do with it?
3- How much money per year will I contribute?
4- What do I expect my rate of return to be?
5- Who is going to make the investment decisions?
No IRA
I personally do not have an IRA. In fact, I think they are bad ideas. Congress has lured millions of people into these programs. When the goverment gives you something, it can take it away.
I have made the point at this site numerous times but it is worth a repeat. If the CPI prints 8% do you think the federal reserve will sit there with the federal funds rate at 1%? Do you think they will keep buying bonds? I do not. The Federal Reserve is going to tell the US Treasury, “you’re on your own.”
The US Treasury will need trillions of dollars to float its debt. At this point, the goverment will make you an offer you can not refuse: Your IRA must buy our special retirement bonds or lose the tax deferred status.
People do not like to hear about this. They have a fundamental belief in these words: ‘full faith and credit of the US goverment.’ Stringing those words together in a sentence make me laugh.
If you are over 65, it is possibly you will outlive the day the checks from Washington D.C. bounce. The bond bull market that started in September of 1981 will end one day. I do not know when. No one does. There is no sign it will end anytime soon. However, I think I will be around when it happens. The US governments last option will be default. Between the time the US Fed stops buying treasuries and the default, your IRA will be a sitting duck.
Instead of putting money in an IRA, why not build a side business? Buy a house from a distressed buyer and rent it.