Size up your Roth 401k retirement investment

Whether to make further investments into a regular tax-advantaged employer plan and IRA personal accounts versus investing in Roth IRA and tax-advantaged employer plan personal accounts is not always a straightforward decision.

The decision on the trade offs is one of the very intricate decisions of do-it-yourself financial planning. A lot of financial factors can decide whether a ordinary tax-advantaged employer plan or IRA account contribution versus a Roth IRA or tax-advantaged employer plan account contribution decision would be better.

For most people’s lifetime circumstances investing into a regular IRA or tax-advantaged employer plan accounts is the best decision, when those contributions would be deductible against this year’s income taxes.

The trade-offs are complex. Rules-of-thumb are not sufficient to model all the important factors. The choice is not just about whether tax rates might be higher or lower. Instead, the decision needs a comprehensive financial projection and analysis of an investor’s life cycle expenses, debts, net assets, and taxes.

(Here is where you can find a comprehensive Roth retirement savings calculator that fully automates this traditional IRA or tax-advantaged employer plan personal account versus investing in Roth tax-advantaged employer plan or IRA account financial projection.)

Whether or not a family will save enough to invest carefully across a lifetime is most important in the Roth retirement plan versus the "deductible against this years income taxes" ordinary retirement account additional investment choice.

If a person does not earn a sufficiently high income, cannot save aggressively, does not dramatically reduce investment expenses, and/or cannot build up a sufficiently substantial investment asset portfolio, then that person won’t be in the upper income tax rates in retirement — whether or not state and federal income tax brackets have changed by retirement. If an investor will not have sufficiently large assets and income in retirement, then the current tax savings an investor can get from deciding on an ordinary retirement plan contribution will tend to be much more economically advantageous over a lifetime.

Note: This discussion ONLY focuses on personal financial circumstances where an investor can choose between a "deductible against current income taxes" traditional IRA or 401k additional investment versus a currently "not tax deductible" Roth IRA or 401k additional investment. If you cannot get the current tax deduction but can make a Roth deposit, then the Roth contribution is more desirable.

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