Many of you know that we have over $100,000 in debt. That is why we are even using clever tricks to try to pay off debt – we are tired of being in debt bondage! One of the things that we have done as a result of our debt is to put a hold on contributing to our IRAs.
Roth IRA For Us?
Over at my site about the bible and money (and all things financial), I recently took at look at the Roth vs Traditional IRA battle. What I found is that there are situations in which either one of these retirement accounts would be ideal. With a few exceptions, there aren’t any “one-size-fits-all” solutions when it comes to personal finance. Every situation is different and may call for a different approach. The same is true when it comes to saving for retirement.
For us, I think it’s safe to say that a Roth IRA is best. Actually, the numbers bare that out as well, but I won’t put those up here. However, I can tell you some of the reasons why a Roth IRA is a better fit for our financial situation.
As I stated on my other site, I believe that the number one question to ask yourself when considering an IRA is, “at what stage in my life (either now or in retirement) will I be paying a lower tax rate?”. Since I believe that we are currently paying a lower tax rate than we will be 25 years from now, a Roth IRA is best for us. Here are a couple of things that I considered:
Levels of income – I believe that we are earning a lower income now than we will be in the future. We only have one income right now, and with the things that we both want to do, this may change. Also, since I am not able to work on KNS Financial as much as I would like, my income from the business is pretty low. Hopefully, I will be able to grow to the point of working for myself, and that should definitely increase our income.
Tax rates – Since our government has been on a spending spree and doesn’t seem to be slowing down at all, it is very likely that tax rates will increase in order to cover the increased spending. Since most of us are short-sighted, we will not be willing to go through spending cuts and/or lower our standard of living (as a nation) in order to fix our economy, so the next step will be massive tax hikes!
Roth IRA Provides More Flexibility & Freedom
Another thing that makes the Roth IRA a perfect choice for us, is that we both like to get through difficult parts of a process upfront. In this case, the worst part about saving for retirement (besides the unpredictable returns) is paying taxes. Therefore, if we can get that experience out of the way as early as possible, we’ll take it! Well, with the Roth, we get to pay our taxes immediately and then never have to worry about paying taxes from our IRA again!
Also, since I plan to work on my own business through “retirement age”, I do not want to be forced to take required minimum distributions. If we use a traditional IRA, then that is exactly what would happen.
Once we eliminate our credit card debt, then we will probably invest up to the IRA contribution limits each year in order to catch up! Whenever that day comes, it will be with a Roth IRA.
Of course, the best way to prepare for retirement is to be completely debt free and in control of your finances.
What About You?
- Do you currently have an IRA? If so, which kind do you use?
- Are you doing anything else to prepare for retirement?
This post is a part of the Roth IRA Movement that my blogging buddy Jeff Rose at Good Financial Cents put together. The last time I checked, there are almost 150 websites that will be posting about the benefits of Roth IRAs! Even though the information is pretty standard, I am confident that each post will be different, because of the voice of the individual writing it! Don’t forget to read my other Roth vs Traditional IRA post!
© 2012, Khaleef “Fat Guy” Crumbley. All rights reserved.