Dave Ramsey is a money-management expert, national radio personality and best-selling author.
I’m 30, and I make too much money to contribute to a Roth IRA. Considering that the taxes will probably be higher down the road when my wife and I plan to withdraw the money, do you think it would be prudent to put money into a traditional IRA or a regular retirement account?
—Andy in Dallas, Texas
Dave Says: I think a traditional IRA is a good idea in your situation. However, you never know what the tax situation is going to be like down the road. A lot of that depends on the political climate at a particular point in time. The general assumption is that you’ll be at a lower tax rate during retirement than you are today, because, all things being equal, your income will be lower.
Here’s a cool idea: You can fund a traditional IRA, because you make more than $169,000 a year—married, filing jointly—then roll it into a Roth IRA. At least it will let that amount grow tax-free going forward. You want to keep the government’s hands off your money as much as possible. Not just from a philosophical standpoint, but mathematically, because it enables the money to grow.
Think about this. If you each put in $5,000 annually—that’s $10,000 a year—from ages 30 to 70, at 12 percent you’d be looking at about $9 million at retirement. Of that amount, you invest only $400,000. The rest comes from untaxed growth. That’s a pretty sweet way to retire!
Related: Young Investor: IRA, 401k or Roth