Knee deep in the middle of tax season we are reminded of the puzzling Roth. First rolled out as the best thing since sliced bread, after careful review … maybe not!
The Main Reason to fund a Roth
If you believe your taxes will be higher in retirement than now, you are a strong candidate for a Roth. Our experiences, and the vast studies show lower effective tax rates after retirement than while working. See below, but all other items being equal, deductions now are better.
Roth V Deductible IRA
A Roth is the opposite of a regular deducible IRA. A Roth is funded with after tax dollar and grows tax deferred. Distributions are made at retirement without taxes. An IRA is funded with pre-tax dollars, grows tax deferred and is taxable upon distribution.
We will spare you the calculations, but if your tax rates are exactly the same in pre and post retirement, a Roth and an IRA have exactly the same end result!
In closing, if you can do both, certainly do so, but if it is either or, in most cases a deductible IRA is better.
Lastly be sure you qualify for any of these as the rules have changed and continue, via income and other plan participation.
Have an Awesome Day!