Author Topic: What's a good article talking about why Roth accounts are often inferior?  (Read 2326 times)

ender

  • Walrus Stache
  • *******
  • Posts: 5574
    I currently am so frustrated by the "roth is the best!" dogma I hear everywhere.

    Frankly speaking, the only way a Roth is better is if some of the following are true:

    • You plan on withdrawing principle at some point before age 59.5 (this is where ER benefits)
    • Your current marginal rate is lower than your effective rate in retirement (perhaps due to lots of kids)
    • You will have significant non-401k/IRA taxable income in retirement (pension, social security, real estate, etc) keeping you in a higher tax bracket
    • You are going to be well out of the middle class income during retirement ("middle class" taxes have remained fairly constant, what changes significantly is the top tax rates). This is probably my least favorite dogmatic statement on the whole, for almost everyone our marginal rates during peak working years will be higher than effective rates in retirement and income will not be high enough to be heavily taxed.
  • You will blow any tax savings from

Is there is a good article which describes all the fallacies about "why Roth accounts are the best!" that I can use when I encounter this perspective?

So many single young adults solidly in the 25% federal bracket throw away tons of money based on this fallacy.

MoneyCat

  • Handlebar Stache
  • *****
  • Posts: 1752
  • Location: New Jersey
I like my Roth IRA because I want to live like a rich person when I am old and pay no income taxes.  It's also easier to control my current contributions if I do so after tax, so I can more easily shift money around to different accounts.

TN_Steve

  • Bristles
  • ***
  • Posts: 257
  • Age: 60
  • Location: fly-over country
http://thefinancebuff.com/case-against-roth-401k.html  (2008)

EXTENSIVE June 2014 discussion:  http://www.bogleheads.org/forum/viewtopic.php?f=10&t=141909 (for more, just look around Bogleheads)

As for your example of 25% marginal rate and single, maybe maybe not.  What is earnings/marital trajectory? 

Basically, if you aren't just starting out, you need to run the numbers.  There have only been two years in which Roth was available to me that it was worth it.  Still, I recommend that my millennial relatives seriously examine it (and have matched our sons' contributions to Roth IRAs when they were in college, which made it an easy call for them)



VirginiaBob

  • Bristles
  • ***
  • Posts: 429
    • LRJ Discounters
I think we all need some combination of pre-tax and post-tax accounts for retirement.  Allows you to mix and match withdrawals between the two in order to keep your tax rate down.

2Birds1Stone

  • Walrus Stache
  • *******
  • Posts: 6084
  • Location: Earth
  • K Thnx Bye
My goal is to max out 401k as well as Roth IRA. I don't think I could max 401k AND have a traditional IRA. I also like the fact that it diversified holding and  tax rules on both accounts may change over the next 50+ years.

MikeBear

  • Bristles
  • ***
  • Posts: 390
  • Age: 61
  • Location: Michigan
My goal is to max out 401k as well as Roth IRA. I don't think I could max 401k AND have a traditional IRA. I also like the fact that it diversified holding and  tax rules on both accounts may change over the next 50+ years.

That's my belief also.

 This year I am going to max out my 401k to the tune of $23,000 by the last paycheck of the year. That pretty much only leaves me the choice of a Roth IRA for an additional $6,500. I have already funded the Roth, and my 401k has hit the $17.5k, and is now filling out the $5.5k "catch-up" for people over age 55.

I don't have so many years left before real retirement, so I'm packing away everything I possibly can right now. Also, if the company I work for decides to let more IT people go and I get the axe, at over 55 I'd have trouble finding another IT job that pays as much around here. So, I could raid the Roth easier for some living money as a last resort if needed.