20 responses

  1. YFS
    April 9, 2012

    If you're in the 15% tax bracket max out that ROTH IRA now! It's a no brainer. It's the first thing I would do after ensuring I get my 401k match.

  2. Emily @ evolvingPF
    April 6, 2012

    I have a Roth IRA because I'm currently in the 15% tax bracket. I'm in graduate school so I haven't even really started my career yet, and I think it's reasonable that I'll have a much higher standard and cost of living by the time I retire and therefore will be in a higher tax bracket. (All else being equal, which I don't think it will, but I still consider it a good bet.) Workplace-sponsored retirement accounts are not available to me right now.

  3. Erica
    April 5, 2012

    I agree with the last two comments. The Roth IRA provides its owner with more flexibility to do more with their money. I am currently paying into a traditional 401k because my company does not offer a Roth IRA account for its employees. Tear. I have received two raises since beginning work 18 months ago. The last one pushed me up to the next tax bracket. If I continue on this pace I will be paying a much higher tax rate when I withdraw the funds in retirement, then I would have if they were already taxed Companies should begin to offer both, and perhaps move to phasing out the traditional altogether. I am however, not smart enough to think of the repercussions that would cause, and how the switch would occur. What do you people think?

    • YFS
      April 6, 2012

      Erica at retirement your income levels should drop dramatically so, when you pull the 401k money you will be in a lower tax bracket.

  4. Julie
    April 4, 2012

    I think that Roth IRAs are the better choice because of their felixiblity. I know that there are some nice offers from the other side as well. but in this unsecure world nowadays, I think felixibility is very important.

    • YFS
      April 6, 2012

      Traditional IRA's have flexibility has just as much flexibility if you need the funds out through qualified distributions. Keep in mind this is a retirement account, so in my mind you need to have all your basis covered prior to investing. If a person has an adequate emergency. fund then flexibility or raiding the IRA shouldn't be an issue

  5. Jason
    April 4, 2012

    It often sounds simpler than it really is, Roth of Traditional? I have a Roth IRA. This is because I believe my tax level will increase at the time my distributions kick in. Naturally, to avoid paying higher taxes later I thought it best to pay them now. Plus, as stated in the article, the flexibility and relaxed withdrawal policies it just seemed more "user friendly" to me. It seems to me that most people believe they will accrue wealth or be paid more over their lifetime than when they started out. This in turns raises their taxes because their income is higher, so why doesn't everybody use the Roth over the Traditional? Am I missing something?

    • Bichon Frise
      April 5, 2012

      Here is one reason not to use the Roth. Say you have a high savings rate, 50%. And your current income puts you in a high (28%+) marginal tax bracket. But, your expenses are in say the 15% marginal tax bracket. This means, you only need an income in the 15% marginal tax bracket and during distributions, will be paying 15% on money from retirement accounts.

      So, the question isn't, "should you pay taxes now or later," it truly is, "will your taxes be higher now or at distribution." We have demonstrated, with actual math, how the Roth IRA and TIRA are the same if tax rates are the same on our blug. We all have our own conspiracy theories about what taxes will do, and we believe the middle class will be relatively safe from significant tax hikes going forward. That, and knowing we will go down a couple of brackets in retirement makes the roth a less than optimal choice for us. We also don't need the flexibility, mainly because we have such a hefty emergency fund (1.5 years). Combine that with a significant portion (from when we made less) of our portfolio is in Roth money.

      Yes, you are missing something.

      • YFS
        April 6, 2012

        Well said! What are you thoughts on high income people who max out their 401k's, but have the option (money) to max out their IRA's. Would you opt for the Traditional IRA or ROTH IRA (Conversion)?

  6. John@MoneyPrinciple
    April 3, 2012

    Every country is a bit different but we have much the same in the UK. Except some jobs particularly in banks and with better employers will build a fund that pays according to the final salary. Typically this is on 1/80ths so if you work for 40 years you retire on half pay – and have a tax-free lump sum as well. I don't know whether that exists in the US.

    • YFS
      April 3, 2012

      This exists in the USA but pensions are going away or predominately common in service industries (like the military).

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