Is a tax-differed retirement plan smart given looming t4ax increases? (IRA, pension)

[Lincolnian]

Given the huge spending taking place with the bailouts and other stimulus activities is it still smart to use a tax-deferred retirement plan like a 401k, 403b, or 457?

It has always been assumed that one would be in a lower tax bracket when they retire and therefore it is better to defer the taxes to a time when one is of retirement age.

I am questioning the wisdom of this advice. There are a number of factors that concern me as to whether or not it is wise to use a tax-deferred retirement savings plan. The are as follows:

1) Many companies have reduced or eliminated their matching contribution making this less of an incentive.

2) Changes in Social Security and the elimination of company-offered pension plans have pushed many people's retirement beyond age 65.

3) Most importantly, the current administration's spending and expansion of government will in all likelihood increase the marginal tax rates, especially for those earners who put aside large sums of money to be withdrawn in the future.

In my opinion, it is conceivable that the current upper tax rates could be lower than future tax brackets on lower income levels at the time one is ready to retire.

If this is the case it would seem that the Roth is the only way to go.

[chet everett]

So let me understand your concern -- since the likelihood of future tax increases is high in your opinion you will invest only current after tax dollars.

Does not seem to fully address all the needs that one will have...

[subsound]

Never expect anyone else to take care of you when you get older, always contribute to something.

I'm not sure what the future of taxes will be, but you can put more money in the 401(k)/403(b)/457 accounts per year then you can Roth accounts (Traditional IRA and Roth IRA Contribution Limits). So while you will pay less taxes, your growth base is lower...for some categories the limits on the Roth is 3x lower then the other options.

[chet everett]

Originally Posted by subsound

Never expect anyone else to take care of you when you get older, always contribute to something.

I'm not sure what the future of taxes will be, but you can put more money in the 401(k)/403(b)/457 accounts per year then you can Roth accounts (Traditional IRA and Roth IRA Contribution Limits). So while you will pay less taxes, your growth base is lower...for some categories the limits on the Roth is 3x lower then the other options.

The law makers may be bad, but they are not all crazy. Believe me if you ONLY considered taxes there is NO WAY you could ever grow your savings/ income/ investments. Need to take advantage of EVERY opportunity to increase your wealth while working to make the smartest current and long term moves that factor in MORE than just taxes.