This is
entirely an opinion based on the facts that I have available and should be
viewed as nothing more than that.
However, I
feel I would be remiss in not pointing out the incredible value that Roth IRAs
can bring to the table for savvy people who are planning their retirements.
There are
actually advisors that straddle the fence on this particular issue and I can honestly
see the validity of both sides.
For me, a
Roth IRA is preferable to the Traditional IRA for one reason and one reason
only. I would much rather face the evil that I know and pay taxes on that money
now than the evil that I don't know by paying taxes not only on the investment
but also the earnings later.
I know what
tax bracket I am relegated to at the moment. I know about how much I'm going to
pay in taxes on the income I've labored to receive about 65% of. I know these
things in terms of what a dollar means today and would much rather pay that
price now than later when I have no idea what tax bracket I'll be in or how
much money I will actually see of my retirement earnings.
Many people
point out that the laws regarding the Roth IRA could change between now and
then. This is very true. At the same time the laws in regards to the 401(k)
could quite possibly change in time as well.
In the art
form of complication, the IRS could put out next years tax code in Greek and
the average citizen would not be able to tell the difference, I for one think
they already do this in the ultimate practical joke on the people. Bottom line
is I would much rather retain the maximum allowable control over my money when
I need that money rather than trying to write off the taxes I will gladly pay
today.
Putting the
taxes off until a later date is like getting a credit card with 0% interest for
12 months. What they don't put in the big bold print is that after the one year
period or the 'honeymoon' so to speak is over that number goes up to well over
20%. At this point in time I have no magic crystal ball that can in anyway
indicate what my tax bracket will be nor can it indicate that percentage of
taxes I will owe five years from now much less 35 when retirement comes
knocking on my door. The peace
of mind that goes with not wondering if it will be enough after taxes is well
worth the inconvenience of paying taxes on those funds today.
If you're
looking for some even better news, try this on for size.
By not paying
taxes on the final amount, you are actually adding hundreds of thousands of
dollars to your income if you invest the full amount allowable over the course
of the next 50 years. You will still save a huge amount of money if you only
make the maximum investment over the course of the next 30 years. Every year
you add to those figures helps wildly of course when it comes to the bottom
line but if you are looking for a way to maximize your retirement funds,
eliminating the taxes on those funds by and large is the way to go.
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