Those who currently think that their Roth IRAs allow for tax-free withdrawals... just you wait another 20 years or so! (And pity those with traditional IRAs/401ks!)

I'm not sure why one would "pity" the traditional or the 401(k). That money hasn't been taxed yet, and account holders are fully expecting to be taxed at withdrawal.

True. In 20 years, those plans may see forced distributions at lower ages and almost certainly higher tax rates across the board... and maybe even some special sop like Oregon's 529s?

For those in their 20s-30s, it may make sense to forgo the 401k in favor of taking today's lower tax rate?

those plans may see forced distributions at lower ages and almost certainly higher tax rates across the board

Maybe.

For someone in their 20s-30s, they should be thinking of the tax-free growth in a Roth 401(k) -- pay today's lower tax rates and hope that any changes are prospective.

In 20 years we could have a national sales tax. Contributions to a Roth IRA is made with after tax money. If we have a national sales tax, Roth withdrawals could be taxed again when the money is spent.

Of course, with a traditional IRA under this scenario, withdrawals could be taxed both under income tax and sales tax.

If only I could predict the future!

"In 20 years we could have a national sales tax."

So buy what you need now.

Tax rates are highest for those in the 20-30s mostly due to lack of deductions and credits available.

You can save a higher percentage of your income (Dave Ramsey recommends 15%) with a 401k while reducing your SS Taxable wages, which also reduces your state and other taxes. Max out the 401k contribution ($16,500) and then contribute to the Roth. More money as a base in the 401k will return more over time. When the mortgage kicks in that's even more off your taxable income.

When you retire the house should be payed off so you draw less from the 401k because you shouldn't have that large expense which should also move you down the marginal tax bracket (or at least paying less taxes as a percentage of income.)

Or am I totally off-base here tax prof?

My own strategy is to maximize qualified plans such as 401(k)'s and traditional IRAs. I wish I had more to play with, but I don't, and consequently haven't thought too far beyond that.

I'm betting that I'm in a higher tax bracket now than I will be when I'm retired (if I ever get there). That's why I lay off the Roth. Besides, I don't think I'd be eligible for a Roth if I already maxed out my traditional plans -- would I?

Besides, I don't think I'd be eligible for a Roth if I already maxed out my traditional plans -- would I?

You can convert your Traditional IRA to a Roth IRA and spread the tax over 3 years... if you do so before Dec 31. (And you can do so regardless of income, which is the usual barrier to Roths.)

https://personal.vanguard.com/us/insights/taxcenter/planning/is-a-roth-conversion-right

But you are right in that you can contribute $5000 to either one or the other.

The best bet, frankly, is a SEP IRA which allows up to $49,500 in annual contributions.

Most of the big fund houses (vanguard/fidelity/etc) recommend diversifying among roth and traditional, if possible. After all, if we get to WW2 tax levels (or a flat tax?), traditional IRA owners may be hosed regardless of income levels.

I see this as inevitable. Big Gov. knows best on how to manage our money and won't screw it up like the evil banks.

Before commenting I have tried to get a basic understanding of the Hungarian Private Pension System. Here's a good link.

http://www.econ.core.hu/file/download/mtdp/MTDP0908.pdf

It looks like that in 1996-97 Hungary replaced its Social Security like system with a private system (sound familiar?) and now that process must be reversed.

I am not sure what any of this means, if anything for the U.S., and I doubt if it means anything at all, but it certainly does not argue for privatization of the U. S. Social Security program.

You can save a higher percentage of your income (Dave Ramsey recommends 15%) with a 401k while reducing your SS Taxable wages

401(k) contributions get an income tax deferral, but are still subject to the FICA payroll tax for SS.

I always wondered how Eastern Bloc countries managed carrying over pension obligations accrued under state-controlled collective economies with little in the way of financial incentives or controls to honoring those obligations in reformed market oriented economies. It appears that step 2 was to require workers to prospectively move a large share of their retirement contributions to a private system, making new retirees less dependent on the state and limiting, theoretically at least, the build-up of new state retirement obligations. Unfortunately it looks like Hungary forgot about step 1 which should have been to provide a mechanism for funding pre-existing state retirement obligations and protecting/segregating the assets.

I wonder if there is anything comparable in Hungary to the 5th amendment of the US Constitution and the Supreme Court? My operating assumption has been to max out various retirement plans/accounts (even when it hurts), on the theory that the government couldn't take my money away (other than through fairly even-handed operation of the tax system, the desirability of even-handedness in many contexts being one of the reasons why I don't think it wise to fall for class warfare gambits).

Count me in on riding down the tracks to the mortgage free retirement station.

I've stayed completely out of 529 plans because flexibility/investment vehicles are so limited and the expense ratios are so high vs. managing my own brokerage accounts.

I am coming across more and more people who simply do not pay any taxes or ssi. Hairdressers, lawn people, dope sellers (can't pick your relatives,) freelancers, nannies, ex-husband (music and film business, very lucrative.) They pay standard living debt with money orders. I've had two small business people say they will only pay under the table, because they don't want to deal with the paper work or health insurance issue (I didn't take the jobs.) They seem to run the spectrum of education. It seems to be a growing trend. What happens when these people get up in age and can't work and have NOTHING to fall back on.

non- Ahh that's so infuriating!!

Julie- uhm they will have the hapless taxpayer to bail them out. Or they can have private savings (tin can), or create an LLC or have assets in another country, or...well just use your imagination! Just because there is a law doesn't mean anyone follows it. We're so obsessed with the illusion of 'justice' in this country. Take a look at all the corruption and blatantly illegal, let alone immoral, acts committed by the city! Isn't that the reason you read this blog?