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What can I do with US$10K that is a good investment?
(lemmy.world)
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this post was submitted on 28 Sep 2024
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pay off high interest debt
top off your emergency fund so you don’t run into expensive short-on-money situations
take care of deferred maintenance on your car or house that might turn into an expensive repair
If you have an employer sponsored 401k, increase the contribution amount to get 10k more tax free into it before the end of the year and use the $10k cash in hand for expenses.
Open a roth IRA and contribute the maximum amount you can (which may vary based on your income)
VT, VTI, and SPY are good broad-market funds with good historical growth.
I used to not have any doubts about a Roth, but I've been considering that maybe it's a little too much like giving the government a free loan. Do you know if there's a thorough comparison anywhere between a traditional and Roth IRA that takes into consideration the opportunity cost of paying tax on the contributions?
Compound interest will far outweigh paying taxes now for a Roth. Especially if you also have a 401k, the taxes in retirement will be potentially large based on the growth of the fund over decades. A Roth makes it so you pay nominal taxes now for potential large tax free growth later.
The exception would be if you think your income will decrease in your later working years, in which case a traditional IRA could make more sense. That however is a unique case. Generally it’s better to take advantage of a Roth if you can for tax free gains later.
I understand how having a higher income and tax rate in retirement makes a Roth attractive. However, the comparisons I've seen don't fully account for the opportunity cost of paying the taxes up front in the case of a Roth, since a traditional IRA lowers your taxable income by the amount you contribute. This tax break allows for a greater contribution. In other words, I think a fairer comparison would show a greater initial contribution for a traditional IRA.