r/povertyfinance • u/k1ranell • 1d ago

Saved my first $5k at 26 pls clap 🥹 Success/Cheers

Post image

I also have some $820 in acorns and <$1500 in a rollover IRA I have yet to move to a ROTH but putting it off for tax/wuss reasons. However, I have $772 in CC debt. But a win is a win, I can pay it off with time 😁

Gonna try to save $10k next year

76.9k Upvotes

87% Upvoted

View all comments

4

u/f8Negative 1d ago

Dude the roth is better for taxes what r u waiting for

2

u/k1ranell 1d ago

I'll do it asap when I get home, you're right, I should stop putting that off

3

u/f8Negative 1d ago

Pay tax now. Get all the gains. Otherwise you get taxed on all of it.

1

u/SxeySteve 1d ago

True, but it's also more complex.

A trad IRA compounds a lot faster than after-tax contributions, especially the longer you have until retirement. Also depends on your tax bracket today vs. when you're retired.

1

u/fellow-fellow 17h ago

Both traditional and Roth would compound based on the underlying investments. If the investments are the same the compounding would effectively be too.

Using a traditional would lower your taxable income, which could mean you are able to put more money in a traditional sooner since you don’t have to pay more in taxes that year. This would leave you more capital to invest and compound.

On other hand, when you withdraw from a traditional, it’s taxed as income. This means that all principal (money you put in) and growth (from compounding, capital gains are not taxed in IRAs) is taxed as income. There are no taxes on withdrawing from a Roth.

The government will eventually require you to pull from a traditional at a certain age for taxes (required minimum distributions) whereas a Roth is not subject to this. There are also income limits on Roth contributions, not so with traditional.

There are many factors that go into the decision and the truth is none of us know the future with certainty so you will never have all the information you need when making the choice.

But whatever you choose, op- Roth, traditional, or a mix of both, it’s much better in the long run than avoiding the question altogether.

1

u/mrmaestoso 1d ago

Unless this is used as a savings account for when you actually need the money.