Roth 401(k)

[Arrian]

Also, making Roth vs. IRA calculations assumes that the tax structure in the future will be the same as it is now. This is almost certainly not going to be true if the future is anything farther than 10 years out. In general, never pay taxes now when you can pay later.

I actually specifically thought about the "tax rates now vs. tax rates 30 years from now" thing. I'm not normally a betting man, but in this instance I must. Given that, I bet taxes, particularly the upper brackets, are far more likely to rise than fall.

-Arrian

[pchang]

The cynic in me

says that future high bracket tax payers will have the same ability to weasel out of taxes as current high bracket tax payers.

[DanS]

Originally posted by KrazyHorse

My apologies if I'm a little dense about this, but why exactly is this? I know it's conventional wisdom about retirement planning, but can you give me the play-by-play reasoning?

Because you're in a lower tax bracket when you're young than you should be when you're retired?

That's the only situation in which Roths make sense versus traditional.

Yes, that's it. It has to do with the income, but also things like added dependents for young people that leave the nest before retirement.

There are other reasons that you may wish to take the tax hit right now, such as you may believe that Uncle Sam will have higher tax needs when you retire. Or at least, you would wish to remove that risk.

[DanS]

Hmmm... Looks like y'all cross-posted my thoughts. Keep up the good discussion.

[Arrian]

Hmm, dependents. We have none now, and we haven't made a final decision on kids yet. That's a factor I wasn't thinking about for this particular decision.

-Arrian

[pchang]

The biggest risk

is that a future gov is so strapped for taxes they will tax the distributions from Roths (thus taxing you twice).

[Arrian]

Ugh. That's not a happy thought.

That's one reason I hate the persisent deficit spending - at some point, reality will set in and we're going to owe. A lot. And it's likely to be my generation, or perhaps the one after that. The *******s who borrowed and spent it all will be gone.

-Arrian

[Flubber]

Originally posted by KrazyHorse

My apologies if I'm a little dense about this, but why exactly is this? I know it's conventional wisdom about retirement planning, but can you give me the play-by-play reasoning?

Because you're in a lower tax bracket when you're young than you should be when you're retired?

That's the only situation in which Roths make sense versus traditional.

I don't know the ins and outs of US retirement stuff but it sounds as if the Roth would make sense in any scenario where one of a couple sees their taxable income go way down in a year. Can you "carry over" available contribution room? If you could , it might make a lot of sense to Rith some money if say wifey goes on mat leave or whatever -- Do they have rules that prevent this??

[pchang]

no carry overs

for retirement contributions. However, as you get older there are "catch up" provisions which allow you to contribute more.

[Flubber]

Originally posted by Arrian
Ugh. That's not a happy thought.

That's one reason I hate the persisent deficit spending - at some point, reality will set in and we're going to owe. A lot. And it's likely to be my generation, or perhaps the one after that. The *******s who borrowed and spent it all will be gone.

-Arrian

Your government does owe. A LOT. I am actually amazed at how much a REpublican government has managed to spend

[Ogie Oglethorpe]

Re: The biggest risk

Originally posted by pchang
is that a future gov is so strapped for taxes they will tax the distributions from Roths (thus taxing you twice).

Its been tossed around behind closed doors. If memory serves the Clintons were looking to find a means to tax 401 K's prior to cashout (i.e. at presuambly highest taxable rate during prime earnings years).

[Ogie Oglethorpe]

Originally posted by Arrian
Hmm, dependents. We have none now, and we haven't made a final decision on kids yet. That's a factor I wasn't thinking about for this particular decision.

-Arrian

If and when you do opt into 529's to give a tax shield for savings towards college expenses. (College expenses only however)

[Spaced Cowboy]

Here is tha main benefit of the roth

[code]
The Roth IRA provides no deduction for contributions, but instead provides a benefit that isn't available for any other form of retirement savings: if you meet certain requirements, all earnings are tax free when you or your beneficiary withdraw them. Other benefits include avoiding the early distribution penalty on certain withdrawals, and eliminating the need to take minimum distributions after age 70½.[/cdoe]

Note that all withdraws from IRAs (aka 401Ks) are taxed including the earnings thereof.

However, with a Roth, your earnings are tax free.

This can add up quite nicely if you are young.