Why should I put money in an IRA?
March 4, 2014 4:37 PM Subscribe
Why should I put money in an IRA, as opposed to just investing it normally?
I have a Roth IRA with Vanguard, but I find myself wondering more and more what I really gain from putting money there when I could put that money in the same index fund without the various restrictions that come with a retirement account. I know that the benefit of a Roth IRA in particular is that the disbursement will be tax-free, but I'm wondering if it makes sense in my case to keep on socking money in there given that:
1. I intend to leave the US at some point in the near- to mid-future, very possibly permanently;
2. I'm extremely pessimistic about the continued stability of US government and financial institutions;
3. I would value the flexibility of being able to do what I want with my funds.
I'm not really looking to argue those premises, but rather given those premises what my best course of action is. If there are advantages to an IRA that I'm not accounting for I'd be glad to hear them. Thanks!
I have a Roth IRA with Vanguard, but I find myself wondering more and more what I really gain from putting money there when I could put that money in the same index fund without the various restrictions that come with a retirement account. I know that the benefit of a Roth IRA in particular is that the disbursement will be tax-free, but I'm wondering if it makes sense in my case to keep on socking money in there given that:
1. I intend to leave the US at some point in the near- to mid-future, very possibly permanently;
2. I'm extremely pessimistic about the continued stability of US government and financial institutions;
3. I would value the flexibility of being able to do what I want with my funds.
I'm not really looking to argue those premises, but rather given those premises what my best course of action is. If there are advantages to an IRA that I'm not accounting for I'd be glad to hear them. Thanks!
If you think the US government and financial institutions are unstable (collapsing?) then you'd be foolish to even keep US currency.
posted by Houstonian at 4:43 PM on March 4, 2014 [1 favorite]
posted by Houstonian at 4:43 PM on March 4, 2014 [1 favorite]
You're probably right that it doesn't make sense to invest in a US tax-advantaged structure if you're planning to leave the US permanently. If you're pessimistic about the continued stability of the US government and financial institutions, equities are a bad idea, too. Maybe real estate and mineral rights (in a country where you do not expect the government to collapse) would make sense given your constraints?
posted by mr_roboto at 4:48 PM on March 4, 2014
posted by mr_roboto at 4:48 PM on March 4, 2014
Leaving aside the long-term stability of US financial institutions, if you intend to move abroad and renounce your US citizenship at some point, there's not much benefit in being exempt from US taxation on disbursements. Since the US is one of the few states to tax citizens residing abroad, there might be a benefit if you intend to live abroad but keep your US citizenship.
posted by brianogilvie at 4:53 PM on March 4, 2014
posted by brianogilvie at 4:53 PM on March 4, 2014
1. I intend to leave the US at some point in the near- to mid-future, very possibly permanently;
It really hinges on this. If you have a genuine, realistic, failsafe plan to gain citizenship or permanent residency in another country, that's one thing. But if you don't, and this is sort of a "I'm going to bum around Thailand for 10 years without a legal visa and see what happens" thing, then you cannot plan on not repatriating, willingly or not.
posted by DarlingBri at 5:18 PM on March 4, 2014 [2 favorites]
It really hinges on this. If you have a genuine, realistic, failsafe plan to gain citizenship or permanent residency in another country, that's one thing. But if you don't, and this is sort of a "I'm going to bum around Thailand for 10 years without a legal visa and see what happens" thing, then you cannot plan on not repatriating, willingly or not.
posted by DarlingBri at 5:18 PM on March 4, 2014 [2 favorites]
This is a complex topic and your information is very vague.
I intend to leave the US at some point in the near- to mid-future, very possibly permanently.
What's the relevance of this point? Taxes? Access? Convenience? Other?
I'm extremely pessimistic about the continued stability of US government and financial institutions.
Pessimistic compared to what other governments and institutions and compared to what other ways you can invest your money?
I would value the flexibility of being able to do what I want with my funds.
Do you mean you want your investments to be more liquid with no penalties for early withdrawals? You should invest in IRAs (doesn't have to be Roth by the way) the funds you want to save for retirement, and invest in other instruments (such as index funds, ETFs, CDs, or whatever) the funds you want to use before retirement.
If you don't have a 401K or other similar plan and/or you do otherwise qualify, then there's an even bigger benefit in doing a tax-deductible IRA contribution every year.
Nobody can tell you what you should do. It depends on your own financial needs and plans, your taste for risk, etc.
posted by Dansaman at 5:27 PM on March 4, 2014
I intend to leave the US at some point in the near- to mid-future, very possibly permanently.
What's the relevance of this point? Taxes? Access? Convenience? Other?
I'm extremely pessimistic about the continued stability of US government and financial institutions.
Pessimistic compared to what other governments and institutions and compared to what other ways you can invest your money?
I would value the flexibility of being able to do what I want with my funds.
Do you mean you want your investments to be more liquid with no penalties for early withdrawals? You should invest in IRAs (doesn't have to be Roth by the way) the funds you want to save for retirement, and invest in other instruments (such as index funds, ETFs, CDs, or whatever) the funds you want to use before retirement.
If you don't have a 401K or other similar plan and/or you do otherwise qualify, then there's an even bigger benefit in doing a tax-deductible IRA contribution every year.
Nobody can tell you what you should do. It depends on your own financial needs and plans, your taste for risk, etc.
posted by Dansaman at 5:27 PM on March 4, 2014
I don't know about IRAs specifically, as I have never lived in the USA, but I have lived in a bunch of countries, collecting tax-advantaged retirement savings accounts in many of them, and I've found that a large number let you transfer those savings into an equivalent retirement style account in a new country, without paying tax on the transfer. So it's worth finding out if this is the case for IRAs and whatever the equivalent is in whatever country you do plan to move to.
posted by lollusc at 5:48 PM on March 4, 2014 [2 favorites]
posted by lollusc at 5:48 PM on March 4, 2014 [2 favorites]
I'm extremely pessimistic about the continued stability of US government and financial institutions.
Please note that if the US Government and/or major US financial institutions collapse, every other nation, and the global economy, will likely go with it.
On the upside, that makes retirement planning an entirely unnecessary activity.
posted by NotMyselfRightNow at 7:17 PM on March 4, 2014 [7 favorites]
Please note that if the US Government and/or major US financial institutions collapse, every other nation, and the global economy, will likely go with it.
On the upside, that makes retirement planning an entirely unnecessary activity.
posted by NotMyselfRightNow at 7:17 PM on March 4, 2014 [7 favorites]
Response by poster: Thanks, everyone, for the answers so far. Just to clarify with regards to this:
posted by Two Stranger at 9:41 PM on March 4, 2014
It really hinges on this. If you have a genuine, realistic, failsafe plan to gain citizenship or permanent residency in another country, that's one thing. But if you don't, and this is sort of a "I'm going to bum around Thailand for 10 years without a legal visa and see what happens" thing, then you cannot plan on not repatriating, willingly or not.I have a parent with citizenship in a country that offers jus sanguinis rights, so repatriation is quite realistic and attainable in my case.
posted by Two Stranger at 9:41 PM on March 4, 2014
One thing I don't see mentioned is that you should see if your employer (and future employers when you leave) will match your contribution to your IRA. If so, you should definitely do it.
On a psychological level, I like the idea of having the IRA. I'm in my late 30s and I can't tell you how comforting it is to know there's a nest egg out there growing. You just never know what the future will hold.
That's really where my advice is coming from. You contribute the % of your salary and don't worry about it. You don't even really miss it from your paycheck. But years down the road you'll be pleasantly surprised by just how much you've saved.
Another benefit is there's no temptation to take that money out when times get a little tight or to use it for a big purchase.
posted by cali59 at 10:05 PM on March 4, 2014
On a psychological level, I like the idea of having the IRA. I'm in my late 30s and I can't tell you how comforting it is to know there's a nest egg out there growing. You just never know what the future will hold.
That's really where my advice is coming from. You contribute the % of your salary and don't worry about it. You don't even really miss it from your paycheck. But years down the road you'll be pleasantly surprised by just how much you've saved.
Another benefit is there's no temptation to take that money out when times get a little tight or to use it for a big purchase.
posted by cali59 at 10:05 PM on March 4, 2014
You could put money into a regular IRA and save on your taxes that year, instead of getting a tax benefit later on.
posted by yohko at 10:45 PM on March 4, 2014 [1 favorite]
posted by yohko at 10:45 PM on March 4, 2014 [1 favorite]
The benefit is that interest grows tax-free. With no huge downside… while you would pay taxes and a penalty on early withdrawals of proceeds, there is no penalty on withdrawing what you contributed. Maybe do the math on the alternative investment you’re considering and compare?
posted by metasarah at 9:18 AM on March 5, 2014
posted by metasarah at 9:18 AM on March 5, 2014
1. if you don't have citizenship yourself (best signified by a passport) in your parents country, I would do that before even considering opting out of US retirement planning. I know people who have believed they could get citizenship in their parents country and found it impossible for various reasons they didn't know about.
2. is an IRA protected from bankruptcy proceedings in the other country? Is it considered non-taxable by the other country? Are you the kind of person who might just 'forget' that it was meant to be for retirement if you keep it in an accessible location?
posted by the agents of KAOS at 12:08 PM on March 5, 2014
2. is an IRA protected from bankruptcy proceedings in the other country? Is it considered non-taxable by the other country? Are you the kind of person who might just 'forget' that it was meant to be for retirement if you keep it in an accessible location?
posted by the agents of KAOS at 12:08 PM on March 5, 2014
This thread is closed to new comments.
posted by Two Stranger at 4:38 PM on March 4, 2014