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Decisions, Decisions

A number of factors go into deciding whether a traditional IRA or a Roth IRA is a better choice for you. These factors include your present tax rate, your projected tax rate when you retire, how long you expect to keep the money in the IRA account, and what you expect to earn on your investments. Projecting your tax rate when you retire is particularly tricky because future tax rates are always subject to the slings and arrows of outrageous Congresses and their whims as to tax legislation. If you have a relatively long period of time before you expect to retire, such as 15 years or more, you may be better off with a Roth IRA. The more time the assets grow tax free, the better.

If you do not expect to need much of the IRA money in retirement, a Roth IRA account is also better because it will pass to your heirs without any income tax liability. A Roth IRA has no beginning date after which you must start taking withdrawals. In that way, I suppose, a Roth IRA is much like love, which was described in the song “Love Is All Around Us,” by the Troggs during the ’60s, as having no beginning and having no end. There is no love in the traditional IRA. The latest date by which you must start taking your money out of a traditional IRA is April first of the calendar year following the year in which you turn 70½. Apparently some senator remembered the old adage that “a fool and his money are soon parted” and figured April Fools’ Day would be a good time to make everyone start taking out their traditional IRA money.


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