Posted By Paul
I read an article that made a point about the Roth that I thought was interesting.
For those of you not familiar with the Roth IRA you can read up on some earlier posts on this topic:
Roth IRA: A tax shelter for your golden years
The Roth as a College Savings Vehicle
I put money in a Roth with the basic idea that the more money I can save towards retirement the better. The article made the additional point that any money you put into a tax-deferred retirement account (like a 401k or IRA where you pay taxes when you take it out, presumably during retirement) has the added wrinkle that you really have no idea what the tax laws will be like when you retire.
The changes in the tax rates for a particular income bracket can have a dramatic effect on your retirement situation. Let's say theoretically that when you retire the tax rates are much lower...well then your retirement money will go that much farther and the opposite situation if tax rates end up being much higher.
When talking about a retirement that is probably decades away, it's VERY hard (perhaps impossible) to predict and plan for this.
However, the Roth sidesteps all this. You pay the taxes now so you don't have to worry about what the tax laws will be in the future.
Not to say you should dump your IRA or 401k, but I thought it was a cool little point about the Roth that hadn't occurred to me.
Here is the full article:
New Ways to shelter your retirement
This blog contains some simple tips and advice from two regular guys. We're not accountants, financial advisors, or brokers, so follow, ignore, or discuss our ideas as you see fit.