Frugal October
My goal this year is to save 50 percent of my income for "taxes" (as a self-employed person I have to pay my own taxes; I do not get any money taken out of my paycheck throughout the year.) While I am unclear what my actual tax rate will be, I doubt it will be the full 50%, thus I will have additional saved funds to put towards larger purchases or saving accounts.
I'm a little behind on my target, which is scary because if my tax rate ends up being 50% after my 15% self employment tax, then I would be screwed. Well, I think I have enough time to catch up, but that means my trip back east is going to have to be frugal, and I'm not going to be able to take any days off of work (I'll be working remotely from the east coast.)
I try to put $3000 into my Roth IRA right after I pay my taxes, if I have the money available, which leaves $2000 to put in throughout the year before I hit my limit.
However, I'm wondering now if I should be funding a Roth IRA at all. Besides the poor performance of the stock market, the Roth IRA may no longer be the "smart" choice for me. I make about $60k, give or take, before taxes. I think my tax rate right now is high enough where doing a Roth is kind of dumb. Sure, I get to take my money out tax-free when I retire, but if my taxes right now are higher than what I will pay when I retire, then this is a dumb move. Not sure how to figure this out, though. Do any of you know?
1 comments:
Well, a google search would be a great place to start for your question. But the bottom line is, if you are young you want a Roth, not a traditional IRA. This is because when you have a traditional IRA you get a tax exemption on the contribution now (assuming your income is in the proper range), but you have to pay income taxes on the contributions AND the earnings when you withdraw it in retirement. With a Roth, you pay taxes on the contribution now, but you get to take the contributions AND the earnings out tax-free in retirement. There's also the ability to withdraw your contributions out of a Roth without penalty if you need to, while a traditional IRA is more restrictive. Also, while the market is tanking now, you can only contribute the maximum every year, so once April 15th of the next year hits, you can't contribute to that year again. Plus, when everything is priced low, it's bargain time for those with a long horizon, which someone your age has.
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