This is guest post from Joe Plemon from Plemon Financial Coaching. Joe is the Money Columnist for The Southern Illinoisan and a frequent contributor on Good Financial Cents.
Assuming you are investing for future retirement, you should seriously consider the Roth IRA (Individual Retirement Account). I am already a huge fan of the Roth, but as the national debt increases with each federal bailout, the Roth is looking better all of the time.
Save Taxes on Down The Road
Let me explain. With the traditional IRA, you get to deduct the contribution for the tax year it was made, but you will pay taxes when you start drawing the money out for retirement. The Roth, on the other hand, is purchased after you have paid your taxes and is therefore tax free when withdrawn. When deciding which one is best for you, conventional wisdom is that if you believe you will be in a lower tax bracket when you retire, you are better off with the traditional IRA. Why? Because you were able to claim a tax deduction at a higher percentage, but pay those taxes later at a lower percentage.
Will Tax Get Cheaper?
But I ask you: do you seriously believe that the tax structure when you retire will be essentially the same as it is today? Is it possible that even if your retirement income is less than your working income, your tax rate could be higher than it is today?
I just don’t see how we can ever pay down our $10 trillion national debt without hiking taxes. My longhand math (calculators don’t have that many zeroes) indicates that we owe $30,000 for every man, woman and child in America. To compound the problem, the Social Security Trust Fund is scheduled for depletion in about 30 years unless “something” is done. That ”something” will have to be higher taxes or less benefits.
Our future tax structure is very uncertain because of our national crash course with debt. Pay your taxes today with a Roth instead of gambling your retirement on the uncertainty of future tax rates.
Want some more info on the Roth IRA? Also, check out the Roth IRA Rules for 2009, phaseout limits on the Roth, and everything you need to know about the 2010 Roth Conversion Event.
Last Edited: 1st March 2009
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I love my Roth IRA! And I get plenty of peace of mind, knowing that over the long run things are likely to be better for me if I use an account like a Roth.
Mirandas last blog post..Currency Trading Basics: 3 Reasons to Try a Forex Demo Account
I have a Roth IRA and believe in them wholeheartedly. They are so flexible and have great tax advantages.
Kens last blog post..5 Tips: Fixing Your Broken Budget
Roths are the best. Growing tax free and if you invest in one right now while the market is on sale you get a win win!