Roth may not be perfect for everyone

Like many, I have certain expectations of camping.  Hard ground.  Hot food.  Cold drinks.  The simple things in life.  I certainly do not expect an eye-opening conversation about tax codes and retirement policies.  So, when the topic came up this last weekend around a campfire, I was quite surprised. One of my friends, generally very astute, was convinced that there was no reason to invest in a traditional IRA.  A Roth, she told us, was just plain better.  Why pay taxes when you don’t have to? I tried to interject to give an even-handed comparison.  “They are different plans,” I protested, “for different circumstances.  Neither one is always better.” My friend ignored me.  She continued.  And I was amazed. A Roth, it turns out, is no mere retirement account.  It can hold stock in Apple and Microsoft.  It compounds in value every nanosecond.  It’s gluten free.  Bluetooth compatible.  Standard and metric.  Faster than a speeding bullet. My account is slightly exaggerated.  Well, borderline untrue.  Fine – a complete and utter fabrication.    But hearing the way many people, my friend included, talk about Roths, it doesn’t seem all that far-fetched Let’s be clear: there are many advantages to a Roth.  The funds can be withdrawn or transferred with relative ease.  It is more flexible in estate planning.  It is not subject to a required minimum distribution at age 70.  And it can save money in the long run, depending on your tax situation. But that is the key: depending on your tax situation.  Roth IRA contributions are included in your taxable income, while traditional IRA contributions reduce it.  All else being equal, the person who uses a traditional IRA will be able to invest more in their plan than the person who uses a Roth IRA, because their tax load is lower.  Assuming both plans are invested identically, with similar tax brackets in retirement, the traditional IRA will have exactly as… | Read More »