by joshdance on 12/2/21, 5:18 AM with 5 comments
Most advice is 'if you will be in the same or lower tax bracket during retirement, chose Traditional, otherwise Roth.
Which sort of sounds like 'if you can predict the future, choose x'
But did more research and it seems like everyone should chose Roth IRA. 4 reasons why.
1. Unless you’re an extremely disciplined saver and calculate how much money you saved on taxes with a Traditional IRA and invest that in a different account, you will , end up with more after tax money in retirement with a Roth IRA.
2. If you continue to increase your income, eventually you won't be able to invest in a Roth. If you are single making over $140,000, you can't invest.
3. Early withdrawal rules are much more flexible with a Roth. There are ways you can get out your contributions before 59 years old without paying a penalty.
4. The Roth accounts have fewer restrictions for retired people. Traditional IRAs accounts require you to start taking money out at 72. With a Roth you don't have to.
by OldHand2018 on 12/2/21, 6:18 AM
- Assume you are in the 22% tax bracket (single filer, $42-89k income). If you contribute $6k to a traditional IRA, you avoid ~$1300 in federal income tax right now and can put those savings into some other non-tax-advantaged investment account. You have absolutely zero restrictions on withdrawals from that account and of course only pay capital gains taxes when you do withdraw.
- IRA contributions are limited to $6k per year and if you are eligible for a Roth IRA then let's be honest - you probably aren't going to be moving up that far in your tax bracket when you retire (sorry).
- (Long shot) If Congress ever changes the laws about IRA taxation, it will be paid at the point of withdrawal. With the traditional, you haven't yet paid anything and therefore can't be double taxed. Don't be so sure about a Roth.
- When you contribute to a Roth, you pay federal, state and local taxes on that money. There are 6 states that have no income tax so that may reduce the tax paid. On the other hand, when you contribute to a traditional you pay no tax now and instead pay at the time of withdrawal. But there are 9 states that do not tax withdrawals, and 27 more that limit taxes on withdrawals.
Anyway, I think the Roth is great, but it is definitely not the right choice for 99% of people :)
by beardyw on 12/2/21, 9:35 AM