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I thought I'd add a little more to the discussion of tax rates in retirement.

Let me generalize about individual income levels for a moment. Statistically, when you're young (in your 20s and early 30s), your income level and tax rate are actually relatively low. Once you settle into your career, your income will rise until it peaks within a range near the maximum for your chosen field/profession. As you near retirement, these levels may drop off for many workers, though not for all.

In retirement, your income level will be lower than at any other time if you depend solely on social security. Beyond that, you may have more or less income in retirement depending on how well you planned during your working years. But as a practical matter, most people that actually plan shoot for some level that's somewhere between 60 and 80 percent of their peak income.

But if you're still young, you don't know what that peak income is going to be. This is the main reason I think funding your ROTH IRA is a good idea when you're young; or in any year you think you won't have much income to report to the IRS. Once you settle into your career and your pay raises start settling down to more normal, inflationary increases you should probably switch your savings to tax-deferred accounts -- assuming you still have room to contribute tax-deferred.

Let me put this another way, and I know it may sound a little strange... But the very best time in your life to contribute to a Roth account is when you may feel you can least afford it. And the worst is probably when you can most easily afford it. The trick is in knowing which is which.

Finally, let me point out a little corrolary to this observation. If you're down on your luck financially -- say you've been out of work most of the year -- now is probably the best time in your life to considering converting a conventional IRA to a Roth IRA because of the tax implications.

- Joel
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