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It Depends

I love the Roth IRA. I just don't love it quite as much as some financial advisors seem to... More be
I love the Roth IRA.
I just don’t love it quite as much as some financial advisors seem to…
More below 👇
Thanks, as always, reading.

Roth IRA? It Depends
Like virtually all matters in your financial plan, when it comes to Roth IRAs… well, it depends.
As you may know, in simple terms, Roth IRAs let you put in after-tax dollars today in exchange for never paying taxes on those dollars again in the future.
This also applies to Roth 401k plans.
A traditional IRA (or 401k), on the other hand, typically lets you put in pre-tax dollars today in exchange for current tax savings while paying income taxes on the dollars when they come out of the IRA (or 401k) down the road.
Bottom line: do you want the tax benefit now or later?
And, of course, it depends.
What does your tax profile look like today?
What will your tax situation look like once you’re retired?
Well, it’s pretty easy to get a handle on what your taxes look like today.
By the way, this is something I can help you with as I’m now providing tax planning (not tax preparation) for my clients. Get in touch to learn more…
Here’s where I have a problem with Roth IRAs…
Many financial advisors are convinced tax rates will be higher in the future.
And I’ll be the first to admit that they might be right.
However, based on this fundamental - and important - assumption, they argue that, if you can, you should “fill up” your lower tax brackets with Roth conversions in the years leading up to retirement (or even after you’re retired in some cases).
This involves taking money out of a traditional IRA or 401k and putting it into a Roth IRA. The problem is that this creates a taxable event.
You have to pay income taxes on these dollars.
Today.
And my question - one I don’t have an answer to - is how do they know?
How does anyone know what tax rates will be in 5 years let alone 25 years?
I sure as heck don’t know.
As a result, I’m generally not comfortable creating a taxable event today in the hope that the numbers work out in your favor years or decades from now.
Speaking of what your taxes might look like in retirement:
How Much Will Your Retirement Taxes Be? | Squared Away Blog
According to the article above, retirement income taxes *might* be lower than many seem to assume. The key word in the prior sentence is “might” - once again, no one knows.
There are a lot of moving parts to Roth IRAs - and I’m not attempting to address them all here - but let me remind you that for your personal situation, it depends.
On lots of things.
But when it comes to converting your pre-tax retirement savings to a Roth IRA, I don’t think it’s quite the financial no-brainer that many advisors seem to.
What do you think?
Hit reply and let me know.
[And if you’d like to see the tax impact of a Roth conversion for your personal situation, I can help with that]
Life Goes On, Make Sure Your Money Does Too
I was happy to have contributed to this recent Forbes article written by my friend Kate Stalter.
Rebuilding Your Finances After Divorce
While I’m not quite as focused on divorce financial planning as I’ve been in the past, I still get a lot of inquiries and the occasional referral to a woman dealing with divorce who needs some financial guidance.
And I’m happy to offer assistance where I can.
How To Save For College?
I’m often asked by clients and other folks, “should we setup a 529 account?” to save for college for a child or grandchild.
Guess what?
It depends.
So I thought I’d compile my thoughts in this recent blog post I published:
College Savings Account Options - Wealthcare for Women
As I reference toward the bottom of the blog post above, who knows what college will look like 12 months from now? And it’s anyone’s guess how it might be delivered or what it may cost 12+ years from now.
Just like the Roth IRA section above regarding future tax rates, the future is unknowable, so planning is smart as long as you and your plan are flexible and can be adjusted through regular reviews and updates.
Questions about saving for college?
Get in touch and let me know.
Until next Wednesday,
Russ

P.S. - “The Gold”… is not an investment recommendation. It’s this week’s indie music track from Manchester Orchestra. 🎵 Give it a listen here.
Why indie music? Please read the Postscript of Issue #2 for context.

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Russ Thornton

I'm Russ, a financial advisor based in Atlanta, GA. My focus is retirement planning for women (and their families) who are 55+. Every Wednesday, I write an email letter with my thoughts and perspectives on retirement and its many related topics. And I might include some other ideas or interesting topics as well 😉

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Russ Thornton | Atlanta, GA | Disclosures: https://bit.ly/3e5t5UJ