Judge your Roth IRA plan

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Whether or not to make investments into a regular IRA and tax-advantaged employer plan accounts versus investing in “Roth” tax-advantaged employer plan and IRA accounts is sometimes a confusing decision.

The decision on the alternatives happens to be one of the very intricate choices of do-it-yourself financial planning. A broad array of personal finance issues can influence whether a regular IRA or tax-advantaged employer plan personal account contribution versus a Roth IRA or tax-advantaged employer plan retirement account contribution choice would be best.

If analyzed properly, the majority of people would find that making further investments into an ordinary tax-advantaged employer plan or IRA retirement accounts is the better choice, when those contributions would be currently tax deductible.

The trade-offs are complex. Simple retirement planning spreadsheets cannot model all the critical tradeoffs. The decision is not only about whether tax rates might be higher or lower. Instead, the choice requires a fully personalized personal finance projection and analysis of the family’s lifecycle income, taxes, and assets.

(Look here for a comprehensive Roth retirement planner that makes automatic this regular tax-advantaged employer plan or IRA account versus investing in Roth IRA or tax-advantaged employer plan account analysis.)

Whether or not a person will save enough and invest efficiently across a lifetime is most important in the Roth retirement plan versus the “currently tax deductible” ordinary retirement account contribution choice.

When a person does not make enough money, cannot save aggressively, cannot strictly control investment costs, and/or does not grow a large enough portfolio of assets, then that investor won’t be in the upper tax brackets in retirement — regardless of whether state and federal income tax brackets have moved up or down by retirement. If an investor will not have substantial enough income and assets in old age, then the present tax reduction a person will get from picking a traditional retirement account additional investment will tend to be much more financially favorable over a lifetime.

Note: This discussion ONLY focuses on personal financial circumstances where the person can choose between a “deductible against this years income taxes” regular IRA or 401k additional investment versus a currently “not deductible against current income taxes” Roth IRA or 401k contribution. When you can’t take a deduction this year but can make a Roth contribution, then the Roth contribution is more desirable.

A fully automated, do-it-yourself financial planner with a Roth financial calculator is needed to produce a much more reasonable family financial strategy

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