Posts Tagged ‘Roth retirement investing’

Whether or not to make further investments into an ordinary IRA and tax-advantaged employer plan retirement accounts versus investing in Roth tax-advantaged employer plan and IRA retirement accounts is sometimes a confusing decision.

The decision on the alternatives happens to be one of the most complex choices of do-it-yourself financial planning. Many things can influence whether a ordinary tax-advantaged employer plan or IRA personal account contribution versus a “Roth” tax-advantaged employer plan or IRA account contribution decision would be optimal.

For most people’s lifetime circumstances investing into a regular tax-advantaged employer plan or IRA accounts is the best decision, when those contributions would be currently tax deductible.

Over a lifetime the analysis is quite complicated. Simple retirement planning spreadsheets are not able to model the many important personal financial factors. The choice is not just about tax rate changes. Instead, the preference requires a comprehensive financial projection and valuation of the family’s lifecycle income, taxes, and assets.

(Look here for a sophisticated Roth financial planning calculator that fully automates this regular IRA or tax-advantaged employer plan account versus contributing to “Roth” IRA or tax-advantaged employer plan account calculation.)

Whether a person will save enough to invest carefully over their lives is most important in the Roth retirement account versus the “deductible against current income taxes” traditional retirement account additional investment decision.

If a family cannot make enough money, cannot control consumption to save a lot, does not strictly control investment costs, and/or cannot accumulate a sufficiently substantial retirement nest egg, then that person will not have to worry about being in high income tax rates in retirement — whether or not federal and state tax have changed in the interim. If an investor does not have substantial enough assets and income in retirement, then the present tax reduction an investor can get from picking an ordinary retirement plan contribution will tend to be much more economically advantageous over a life cycle.

Note: This article ONLY talks about financial situations where somebody has the choice of making a “deductible against this years income taxes” regular IRA or 401k additional investment versus a currently “non-deductible against this years income taxes” Roth IRA or 401k contribution. If you cannot get the current tax deduction but can make a Roth deposit, then the Roth contribution is better.

Sophisticated financial planning software with a Roth retirement planner calculator is necessary to develop a thorough lifetime financial plan

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