Over the years, I’ve been challenged by clients who present me with questions that even King Solomon in his infinite wisdom couldn’t answer. Other questions, complicated though they might be, are much easier to manage because they can be solved by running the numbers.
Chapter 3 of the new edition of Retire Secure! quantifies a number of “what if” scenarios that are frequently presented to me by my clients. What if I’m in an average tax bracket, and I need to cash in my retirement account? What if I’m in the highest tax bracket, and I need to withdraw all or part of my retirement account? What if I’m in a high tax bracket now, but am in a lower tax bracket when I need to withdraw all or part of my retirement account? What happens if I’m in a high tax bracket now, but I lose my job and am in a very low tax bracket when I need to withdraw all or part of my retirement account? What happens if I’m in a high tax bracket, but my heir is in a low tax bracket? All of these are very significant considerations if you have to choose between a Traditional IRA vs a Roth IRA.
Questions like these can be accurately answered by using quantitative analysis. Chapter 3 presents a series of hypothetical scenarios which prove that certain tax situations definitely do favor the use of one type of account over another. In some situations, the Traditional IRA is better, and in others, the Roth IRA is better. If your choice is Traditional IRA vs Roth IRA, you may find some of these scenarios thought-provoking. As with the previous chapters, the assumed rate of return has been reduced to a conservative 6%, so the differences in the illustrations will be even more pronounced if you earn a higher rate of return on your own investments. The illustrations should only be used as a general guide. In order to get the most accurate answer for your specific situation, please consider asking us to run the numbers for you.
All this discussion about the Traditional IRA vs Roth IRA debate reminds me: you really should take a look at my next post about Chapter 4. It delves into some surprising new details about spending retirement accounts!
A nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train and educate financial advisors.
Jim’s strategies have been endorsed by The Wall Street Journal (33 times), Newsweek, Money Magazine, Smart Money, Reader’s Digest, Bottom Line, and Kiplinger’s. His articles have appeared in Bottom Line, Trusts and Estates Magazine, Financial Planning, The Tax Adviser, Journal of Retirement Planning, and The Pennsylvania Lawyer magazine.
Jim is the best-selling author of Retire Secure! (Wiley, 2006 and 2009), endorsed by Charles Schwab, Larry King, Ed Slott, Jane Bryant Quinn, Roger Ibbotson and The Roth Revolution, Pay Taxes Once and Never Again endorsed by Ed Slott, Natalie Choate and Bob Keebler.
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