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Subject:  Re: Roth investing/withdrawing at 60 Date:  3/15/2012  7:42 AM
Author:  TwoCybers Number:  70353 of 74759

I tend to disagree

You are correct about being able to withdraw all you want tax free. But if you bury gold in the backyard you can take out all you want tax free. The point here is the money you invest in the Roth was taxed before if went in -- so the only "saving" you have is for taxes on the net gains in your Roth.

I have read several different studies on Roths and all of them say a few things.

#1 Roth's have value if the goal is to pass money the Roth owner will not need to the next generation without taxes. (But keep in mind estate taxes don't happen on over 90% of the estates.)

#2 Assuming the Roth owner is going to use/spend the funds - than a Roth does not make sense unless the tax rate (that would be total tax rate, not marginal) at the time of withdraw is less than the tax rate when funds are placed in the Roth. i.e. If in retirement your tax rate is less than when working, it it doubtful you will pay less taxes in total and/or have equal purchasing power.

#3 People pushing Roths, generally have a financial interest i.e. they want to sell you something.

#4 If one assume over the remainder of your life, the averages for inflation and investment returns since 1929 happen, the break even point for funds in a Roth vs a 401K is somewhere beyond 20 years -- i.e. you must not take funds out for at least 20 years, or you will loose. (This assumes your tax rate in retirement is the same as when working.)

As an aside, if for you Roths are beneficial to you, you can transfer all your current IRA funds into a Roth today -- and pay taxes of course. I mention this as a counter point -- there are people who say mortgages are a good idea because you can deduct interest expense. How many of those people advocate a person with no mortgage go to a bank and take out a loan for the purpose of creating a tax deduction?

Gordon
Atlanta
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