Quote:
Originally Posted by jotucker99
What makes it stupid though? Sure with the Roth you don't have to pay taxes when you take it out but still, we can say with the Debt that taxes are likely to be higher in the future but who knows?
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this is not true at all. your retirement tax bracket may very well be higher .
it is only recently with a new study and view that t.rowe did ,that we are actually looking at roths vs traditional in a new light.
what folks tended to do is look at their final upper years income and decide that they will be in lower tax bracket at retirement when the pay checks stop.
makes sense because your retirement budget and income tends to be within 20% or so of your working income.
but t.rowe looked at the fact most of us who are not professionals and start our careers near the highest tax brackets spend decades ramping up in income and tax brackets.
you may have spent the first 25 years of a 40 year career at much lower brackets and income than those later years.
taking the deduction in traditional ira's and 401k's all along may be quite harmful since your long term average tax bracket will be alot less than your retirement bracket which is close to your final years income.
doctors ,lawyers and other careers that have you entering near peak incomes would likely do better deferring taxes as well as those with jobs that will see little pay changes ever, mostly those on the low end of things.
the rest of us working stiffs will have a much lower average tax rate over our 40 years working and will likely be in a higher tax bracket at retirement than that long term average spanning decades at far lower pay .
the study concluded even if tax brackets were no higher by retirement you could have as much as 20% more spendable money by doing that roth day 1 .
throw in the fact that after 70-1/2 any of the rmd money you reinvest from a deferred account has gains , interest and dividends taxed forever . the roth stays tax free for life.
if the roths prevent your ss from being taxed then again even if no bracket change at the end the roths win by a landslide.
we always think we will be in a lower tax bracket when the pay checks stop , but we were only looking at the final years income . the other decades of your working history may have a far lower average tax rate than you will in retirement based on the higher income days.
taking that deduction at those lower levels may bite you in the end.
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