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I have decided to max out my 457 Plan for 2015 (max out is $18k/year). I have the choice to either make contributions to this fund Traditionally (pre-tax) or as Roth (post tax). What do you think I would be better off doing? A little info about me which could impact decision is that my salary is about $40k/yr and I will be filing Married Jointly.
Any opinions/suggestions would be appreciated!
Estimate whether you expect to have more taxable income in retirement or less. If more, go with Roth. If less, go with Traditional. Pay the tax where the tax is lower. There is lots more to consider, like potential for returns, future expected large expenditures, etc.
Another way of saving a lump sum for later retirement when you will need to move to a care facility is to by as much house for retirement that you can if you think property values will go up on historical average during retirement. Then when you sell many years later you may be able to take the entire appreciated value tax free if you haven't done it already with another previous house. It will also get you a retirement free of mortgage payments.
For me, traditional works much better. I used to have a Roth and hated it. It makes zero sense to me. A traditional IRA allows you to have a nigher net pay, because it's deducted pretax AND it allows your investments to have a higher basis for growth over time. I don't mind paying taxes upon withdrawal in the future, because even after the future tax liability, I'm likely to have a bigger net withdrawal than I would had I used a Roth. Also, you can sort of control how much tax you will pay upon withdrawal, because you can control how much to withdraw in the first place. The more you withdraw, the more tax you will pay. The less you withdraw, the less tax you will pay. Roth IRA's are the most overrated type of account ever IMO and I don't recommend them to anyone, unless there's 100% certainty that that person will be in a substantially higher tax bracket by then. But tax legislation changes all the time, so it's stupid to even worry about it now.
A traditional IRA ........ allows your investments to have a higher basis for growth over time.
While I agree with some parts of your opinions, this seems incorrect, in fact it's the opposite. Both roth and traditional IRA have the same contribution limit. Say the contribution is $5000. Both will grow with that amount as the basis, but upon withdrawal, traditional IRA would lose some to tax, while Roth doesn't.
Edit: Unless perhaps you were referring to the money saved by deferring the tax?
But it does seem to make sense to prefer traditional if one is in lower tax bracket after retiring, which I thought most people would be, but I don't know. Since many chose Roth, maybe they think they'll in higher tax bracket later?
I think a lot of people simply like the security of knowing that Roth distributions are tax-free, period. There's no guessing involved in what tax bracket you'll be in.
For me, traditional works much better. I used to have a Roth and hated it. It makes zero sense to me. A traditional IRA allows you to have a nigher net pay, because it's deducted pretax AND it allows your investments to have a higher basis for growth over time. I don't mind paying taxes upon withdrawal in the future, because even after the future tax liability, I'm likely to have a bigger net withdrawal than I would had I used a Roth. Also, you can sort of control how much tax you will pay upon withdrawal, because you can control how much to withdraw in the first place. The more you withdraw, the more tax you will pay. The less you withdraw, the less tax you will pay. Roth IRA's are the most overrated type of account ever IMO and I don't recommend them to anyone, unless there's 100% certainty that that person will be in a substantially higher tax bracket by then. But tax legislation changes all the time, so it's stupid to even worry about it now.
Once rmds kick in you can't control how much you withdrawal. It's a little overboard to call Roths the most overrated account ever. You'd most likely be better served having a mix of pre/post tax retirement savings instead of saying it's stupid to worry about tax legislation now
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