A Novice Investor Roth or Traditional IRA thought Experiment

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IRA… Roth or Traditional… Roth or Traditional…

I can’t decide if I should be using traditional IRA or Roth IRA.  This is not a how to post.  I really can’t decide.  Actually, I think I may have settled on a best guess formula for myself, but you’ll have to read further to find out.

Disclaimer: I’m just like you

I’m going to say that I’m still so totally a novice investor.  I am like A LOT of well paid professionals.  I am by no means a hobby investor or personal finance buff.  I’m trying to learn, but I will readily admit that it is overwhelming to me.  There is SO MUCH information out there and no one wants to make a bad choice.

So, some more sophisticated investors may laugh at the scenarios I present.  But it’s honest! These are the kinds of things people try to consider.  Take in to account my somewhat unique marital situation of a significantly older spouse who also retired early (vs. the more common situation of an older spouse who worked for years and has significant retirement savings) and I’m left with little practical advice when searching the web.  I could pay someone to advise me, but, I’m too mistrusting of financial planners for that.

I also suffer from analysis paralysis, which is why I continue to use Betterment  currently for most of my investing.  It may not be perfect, but, it’s better than having it sit in a checking account.

When deciding to go with either type of IRA it is largely based on a guess of what your income will be in retirement.  From a Bogleheads Wiki:

“The main reason to prefer one type of account over the other is the comparison of marginal tax rates. If your marginal tax rate now is higher than your estimated marginal tax rate at retirement, then the traditional account is better; if it is lower, then the Roth account is better.”

Well, that’s actually a really hard question for me to answer.  I would imagine it would be hard for a lot of people seeking early or “non traditional” retirement. To answer also.

Here’s how this situation plays out in my head…

Ok, so, I’m working full time right now but I’m not really getting any cash from from passive income streams or “side hustles.”  So, even though I plan to cut back on the amount of traditional work I’m doing in the next 5-10 years (hopefully sooner), I really don’t know if I will be making more or less as time goes on.

Also, being that we have a child and I want to take advantage of fun and family during our peak years, there is a good chance I will want to drastically cut back on the amount of work I’m doing for a 10 to 15 year period starting in 5-10 years, regardless of if I have other major income streams.

During this period of cutting back on traditional work, I don’t know if I will even have enough to contribute to 401ks (assuming I still have a real job) and IRAs.  All of the money I do take in could very well be put toward living expenses during this period because I wouldn’t be able to get into my retirement accounts without penalty.  So, I should both continue to max out as much of my tax deferring accounts while I can.

Things I consider:

  1.  I don’t expect any major salary increases.   Aside from any pay raises, which as of late, don’t even match inflation, I don’t expect to make much more at my job.  I am the manager of the pharmacy where I work and with my current company that’s about as high as I can go.

I do have my per diem job, but, between the two jobs I’m averaging a little less than 40 hours a week.  I don’t except to work much more there for work life balance reasons.

Also, because I’m salary at one job and per diem for the other, I, sadly, cannot take advantage of overtime.  If I could, I would be willing to pick up more time more often.

Points to the traditional IRA


2.  I don’t plan to fully retire anytime soon, or perhaps even once I reach technical retirement age.  Assuming I play my cards right and plan well, I should be satisfied enough with my career to enjoy working in some capacity indefinitely.  I think continuing to work somehow is good for the mind and for the health.  I don’t want to quit working and just stagnate, so, I’ll probably be doing something that drives an income of some kind for a long time.

Points to I don’t know! Just something I think of.  Who knows if I’ll be making more or less in retirement in this respect.


3.  We have a child on the tax roll now.  So for the next 2 decades or so, we can claim my son on our taxes.  This lowers our tax burden.

What I expect to be my peak earning years will be the time we can take advantage of having an extra person to reduce the taxes.

Points to Roth IRA here?  Depends on how much I’m actually making


4.  My husband is significantly older than me.  About the time that we lose the child tax boost, we will probably start drawing from my husbands retirement accounts (small 401k and social security).

Since he retired early to be a stay at home dad and property care taker and all around unreimbursed busy ass retired person, we’re not expecting much from his retirements.

Morbid as this may sound, I’m just being realistic: my husband is going to die before I am.  By the time I hit my seventies I can expect to be in the single filer tax status.  This would also be the point at which I fully stop working, most likely.

Points to I don’t know… depends on how well investments have done, maybe?


5.  I plan to kick ass with my investments.  Assuming I keep maxing out my 401k, and my HSA (as well as 529 plans, but that doesn’t help here) and investing the rest, there is a potential I could be making at least equal to my current income in at retirement age.  Wishful thinking perhaps that I’ll be making 100k plus off investments, plus potential “work” income, but if I don’t aim for the goal, it most certainley won’t happen.  So, I’ll keep thinking for the best.

Points to Roth IRA here

6.  I expect our taxes will go up over time for anyone earning even a modest income.  Yes, I know there was just a tax cut, but, I still think tax rates on those earning more than median wages will continue to go up.

Points to Roth IRA here


 My (current) verdict

Working through this thought experiment, I THINK traditional IRAs are still the way to go for me.

As for my “formula”

Since I’ve settled on a general number of expecting to need 50k/year in “retirement” to keep our current lifestyle.  If at some point I am taking in less than 50k in a year AND have money to put into retirement savings I will contribute to a Roth IRA.

There is no fancy math behind this.  Being that I’m still unsure of what the best choice is for me, this sounds like a good rule to stick with right now.

You DO NOT have to be an investing genius to save money, build retirement savings and plan to retire early.  And, it’s ok if you are unsure of yourself and make the best choice you can at the moment.  It’s better than making no choice at all!

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Regina is That Frugal Pharmacist. She’s a PharmD, mother to a son with cancer, breadwinning wife, personal finance enthusiast, artist, writer, and entrepreneur. Regina’s single-income household has been debt-free, including her home, since she was 28 years old.
Her money approach is “holistic financial health.” She encourages mindful spending, awareness of the non-monetary costs of choices, and aligning personal values with money habits. Regina sees a frugal lifestyle and mindset as an important part of environmental stewardship. As such she’s interested in ongoing efforts towards self-sufficiency and sustainability.

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