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Posted by JoeTaxpayer on November 4, 2008, 5:01 pm
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Gary wrote:
> Whis one is better for me ?
> What are the different factors that I should consider ?
A) How old are you?
B) What is your current income and will it grow faster than inflation?
By how much?
C) What is your current retirement savings position?
D) What is your current saving rate?
E) Married/Single/ family/ plans?
The choice is based in part on whether you are poised to retire in a
higher tax bracket than you are currently in. The above would give a
good indication of where you are aiming. It's not an exact science as
there are too many unknowns, but there is a probability distribution.
Those who have a good traditional pension (defined benefit) which will
replace a good portion of their income have a better chance of being in
the higher bracket at retirement if they are also saving well.
Those with good incomes but getting a late start would find it tough to
do that, and the traditional 401(k) is better.
From what I see and project, Roth is better for a very few (less than
10%) people. There are also few who make it through their lives with no
period of unemployment or low employment. Child arrives, one parent
stays home for a year, one spouse goes back to school or is unemployed
for a spell, etc. During those times, you can take 401(k) money (or
traditional IRA money) and convert to a Roth IRA and pay at the lower
tax rate.
Joe
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