cborgrx on August 31st 2012 05:51 pm
You want to do the right thing and save for your retirement. But you are unsure of the proper saving vehicle to go about it. What to do? ? Well, you can hire a financial adviser and explore the pros and cons of a Roth.? You can talk to friends, relatives and neighbors.? FORGET THAT! Or, you can do your own homework and cross your fingers. Ultimately what is at stake is your ability (or that of a chosen financial adviser), to try and predict the future. ?Ideally, you want to get this right as your financial freedom will be determined by it.
Before we get into predicting the future, a short refresher would be in order. Saving inside a Roth IRA or a Roth 401k would happen with after tax dollars while the withdrawals that you will take from these accounts down the road will happen tax free! On the other hand saving into a traditional IRA or 401k would happen with before tax dollars and are withdrawn at your then current tax rate when you retire. The thinking here is that most people retire into an income tax bracket that is lower than what they have during their working career.
But, and this is a big but, what happens if you do all your homework and get this right only to have a hurdle thrown at you when you retire. ?Say for instance you live in New York which is a high tax state. ?You work your whole life contributing to a Roth and then at the end, you decide to retire to Florida as many people do. Florida has no income tax so in this particular case Roth investing may not have been in your best interest. ?Another wrench ?that often messes up with your calculations is the future tax picture and it?s affect on your tax rate. If you expect taxes to rise then your retirement income will be enhanced if you have been investing inside of a Roth while the opposite is also true.
The bottom line is this?if you are like most people, you are probably not very good at predicting the future. Trying to figure out where taxes are going? is not easy to do. More importantly than predicting the future is your ability to control the things that you can control RIGHT NOW,? like spending and saving. ? What you really need to do is start start saving early, save regularly,and keep up with the changing financial landscape. ?In the end, what really matters is that you have a sizable nest egg from which to make withdrawals. Your financial freedom will be dependent upon it. Good luck.
Source: http://ratracebgone.com/articles/is-a-roth-ira401k-right-for-your-financial-freedom/
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