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you can't worry about all the remote what if's . if you do you will end up like those doomsayer's over on the economics forum .
you can only plan around what was , what is and what stands a reasonably good chance of being . then adjust accordingly as things unfold .
the only issue i can see with roths is making them no longer totally tax free after rmd age .
Wouldn't that be double taxation since initial money put into Roth was taxed? Unless they decide to tax the gains. That would defeat the whole idea behind a Roth.
not really . this is on gains after the age of 70 . rmd's require traditional plans to stop tax deferred compounding at this point so it may be considered only fair that you stop the tax free compounding after 70 on roths too .
other than that i can't see the gov't messing with roths . no one will pay those taxes up front anymore if that is the case and they do not want that .
everyone loses if that is the case , especially the states since many relocate down the road and never pay state taxes on deferred retirement accounts . so folks paying taxes up front during peak earning years is important to the gov't .
Well, that's too strong a statement to apply to everyone. Even with today's rules there are some people who are better off in Roth, some are better off in Trad, while yet others are better with some mix of those two. Not everyone is at the precipice of the ACA credit cliff, nor getting torpedoed by the SS tax rules.
unless you are at the highest brackets a roth will likely be the better choice .simply because of all the things linked .
especially if you are in the earlier stages of your career . you will likely ramp up in pay over decades making your average tax bracket over your career lower than your retirement bracket .
your retirement bracket is usually based somewhere around your higher years .
unless you start out in your career way up there in pay your career average will be much lower . my son is in that exception category since he is an attorney and his wife is a cpa so she is also well up there early on .
t.rowe did an extensive study on this . they found between the career average tax bracket being lower and the linking later on to all the other things that unless you started out in the higher brackets there were actually very few scenario's traditional's worked out better .
t.rowe found even with no changes in tax brackets the roth provided as much as 20% more cash flow .
I think most, if not all, of the literature out there advising people how to choose between Roth and Traditional (whether it's 401k or IRA) only addressed the tax aspects, and only compare the taxes and earnings on the contributions to the traditional or Roth account, but almost never point out the fact that, when you contribute to traditional account, the money that you have saved presently from not paying tax on the contribution are likely (for many people) invested in the taxable account. This would be significant if your taxable account have much better investment vehicles than your 401k, and the gains you may have from this taxable account may outweigh the taxes you will pay when making withdrawals from the traditional account.
With that in mind, if my 401k has mediocre investment vehicles, I would contribute to the Traditional 401k, but Roth IRA (since I can choose any brokerage for IRA, with many excellent investment choices), and invest the tax deductions (via deferrals) from traditional 401k contribution in a taxable account with a good brokerage.
To put it simply: do traditional if the investment choices are very limited or of poor quality, do Roth if the investment choices are very good.
odds are for so many reasons other than tax bracket changes the roth would likely win again .
It had recently come to my attention when an acquaintance casually mentioned to me that as a state employee, he will not pay state taxes when he withdraw from his employer-linked retirement account after retirement (ok, he later clarified, it's the first $20K in a year that will be state-tax-free---still doesn't affect the point I'm making). In that case, if the state has high tax, deferred contribution may have advantage over Roth, since in Roth he'd have to pay both federal and state/city taxes up front. Opinions?
certainly could be a factor . it is one of the reasons conversions are allowed . many states will get cheated out of their tax share when a person does a traditional then moves .
conversions give states a chance at capturing that income .
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