Technically, if all is considered equal, a standard IRA and a Roth IRA will give you the exact same return after taxes. This is absolutely true, if you make one assumption. To get the same results, the tax rate has to be the same when you pay the tax before putting money into the Roth and when you pay tax taking money out of the standard IRA. If the tax rate is the same going in and coming out, there is no advantage to having one type of IRA over the other.
However, tax rates today are nearly at historic lows. Believe it or not, that is true. It’s a pretty safe bet to say income taxes are go up, so the Roth becomes the clear winner.
You need to go to great lengths to get a Roth IRA. Once you have a Roth, even if there isn’t a lot of money in it, you can start buying property in the Roth and many other things to build your Roth fortune. If you have an adjusted gross income (AGI) of over a specific amount, you can’t create or fund a Roth IRA this year. If you are in that situation, at the event we are going to discuss some things that can be done to lower your AGI.
The standard IRA does have one advantage. The money you put in a standard IRA lowers your AGI. If you could lower your AGI to put yourself into a lower tax bracket, that could be significant. So, you almost have to run your taxes showing a standard IRA and the run them again showing a Roth, if you want to determine which is best for you this year.
Start thinking about tax stuff. Did you pay too much in taxes on the last go around? What can you do to lower your taxes this year? Slashing taxes will be a big topic I will be discussing at the event. I’ll see you there!
Lee R. Phillips
United States Supreme Court Counselor