Many people nowadays are under utilizing Roth conversion strategies as well as not contributing as much as they should to Roth IRAs. The theory behind having a traditional IRA is during your working life you are considered to be in a higher tax bracket as oppose to when you retire. So it would make sense to get the tax right off now while in a higher tax bracket. The assumption is that when you do retire it is better to pay the taxes then because you will be in a lower tax Bracket. This makes complete sense if this were truly the case. What we are finding in our practice is that many retirees are in the same tax bracket if not higher when they do retire.
You might be asking yourself well how can that be? Many of our clients in their retirement years have already paid off the home so they no longer have that write-off and kids are out of the house so they no longer have those exemptions. Many of our clients who are teachers, engineers, doctors, government employees, and other professions have great pensions and are retiring with as much income in retirement as they had been making when they were working.
So to make a long story short it is very important to not contribute blindly to tax deferred plans. It is important that you also consult with a good financial advisor that is going to help you look at the “Big Picture.” With tax rates looking like they may be on the rise it might even be more imperative that you have your financial plan reviewed. I have stated before in other blogs and to my clients there is a lot more to retirement planning then just chasing return or blindly following the old philosophies. Talk to a financial advisor and see if it makes sense for you to do a Roth conversion strategy or contribute to a Roth IRA based on your particular circumstances.