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Rant: People keep saying Roth IRAs are always the best pick
I was talking to a buddy last week who just got his first job out of college. He told me his coworker swore he should dump everything into a Roth IRA no matter what. But my guy is making $38k a year and will probably jump into a higher tax bracket in a few years. I tried to explain that a traditional IRA might save him more on taxes right now since his income is low. Am I missing something or do people really not think about current vs future tax rates?
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craig.john4d ago
People get sold on Roth IRAs because the tax-free growth sounds amazing, but they totally overlook the fact that your buddy is in a lower bracket right now and will likely pay higher taxes later. If he puts money into a traditional IRA today, he gets a tax break right now when he needs it most, then pays taxes on withdrawals when he's in a higher bracket which actually saves him more in the long run. Your buddy should check if his company offers a 401k match first, then weigh whether the immediate tax savings from traditional makes more sense than paying taxes now on a Roth.
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parker1834d ago
@craig.john nailed it, totally agree traditional is better when you need that tax break now.
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Yeah @craig.john that's a good point about the 401k match being the priority first... most people skip right past that step. The real kicker is if his income jumps up a lot in a few years he could always convert some of that traditional money over to a Roth later when it makes more sense.
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