df22002003
First Time Poster
Cash: $ 0.25
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Joined: 05 Mar 2005
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I have heard that if you are in the highest income tax bracket now, and plan on being in a lower tax bracket when you retire, that the Roth IRA is not right for you. But what if you plan on being in the same tax bracket at retirement that you are at now. Would a Roth IRA be right?
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Sat Mar 05, 2005 7:47 pm |
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David Briggs
Senior Member
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Since the Roth IRA is funded with after tax dollars, I would adopt as a general rule than if your income tax rate is expected to be the same now as when you retire the traditional IRA is still preferred because of the deductiblity of the contribution at the front end.
Jim Blankenship should weigh in on this one, though. He is certified as someone qualified to advise in regard to the after-tax consequences of tax deferred investing.
~~David
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Sun Mar 06, 2005 1:27 am |
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BlankenshipFP
Money Talk Advisor
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Location: Illinois
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This is a different spin on an old question - and there isn't a definitive answer, unfortunately. It depends on how much faith you put in the tax rates remaining the same.
It's a crap shoot, but here's how I'd break it down: if you believe that tax rates will be higher in retirement, go with the Roth. If you believe they'll be substantially lower, go with the traditional. If you think they'll be the same, my instinct says to go with the Roth, because then you'll have no tax on the growth, in addition to already-taxed contributions. This, of course, depends a lot on how long you'll have the money growing in the account. With the trad IRA, you're trading a tax break on the contributions (today) for taxability on both the contributions and the growth in the future.
You mileage may vary, of course. It makes good sense to ask this question and consider the timeline, the amounts involved, and your general belief with regard to tax rates.
Hope this helps -
Jim Blankenship, CFP�, EA
Blankenship Financial Planning, Ltd.
www.BlankenshipFinancial.com
Standard IRS Circular 230 Notice Applies
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Sun Mar 06, 2005 11:52 pm |
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David Briggs
Senior Member
Cash: $ 57.86
Posts: 289
Joined: 16 Jan 2005
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Taxability on the growth. Totally forgot about that metic. Good call Blankenship. Assuming that growth is something which is more predictable than future tax rates!
~~David
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Mon Mar 07, 2005 3:54 am |
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