Day: September 3, 2021

There is a list of objections commonly used against the use of a Roth. The following are answers to the most common tax concerns. Concern #1: Is it better to pay taxes now or later?  Because there are many unknowns related to tax code and changes in individual earnings, there is only one good way to approach this question meaningfully. One must presume that tax brackets will not change, individual earnings do not change, and that only the tax-deductible equivalent is invested using the Roth. To illustrate, a $5,000 contribution made to a traditional IRA by an individual in the 15% tax bracket, would result in an out-of-pocket expense of about $4,250 once you take into consideration the tax deduction. As such, $4,250 would be the ‘tax-deductible equivalent’ for use in comparing to a Roth. Presuming both contributions earn 6% per year, but withdrawals are tax-free to the Roth holder and taxable to the Traditional IRA account holder, the result is that there is no tax advantage either way. One did not position themselves better from a tax perspective. (There are still other advantages to using this strategy, such as not having a required minimum distribution and the cross generational