Roth? Traditional? Both

Michael Batnick had a Tweet for a recent podcast with Ben Carlson about Roths versus traditional accounts. The simplistic difference between the two accounts is that with Roth accounts, you pay taxes on the front end (no deduction for making a contribution), your money grows tax free inside the account and there are no taxes on qualified withdrawals. For a traditional IRA/401k, you get the tax break on the way in (a deduction for making the contribution), your money grows tax free inside the account and then you owe taxes on the way out when you make a withdrawal. The other wrinkle in this equation is that with traditional accounts you are required to start taking a little bit out when you turn 72 (recently upped from 70 1/2) so that the government can collect tax from you. There are no required distributions from Roth accounts because there is no potential tax to collect.

I replied to Michael's Tweet saying "both" which then drew a couple of comments including whether further bumping the required distribution age to 75 due to increasing lifespans might make the Roth relatively less attractive than they are now. That's a good question but my overriding belief in both is mostly about my perception of optionality.

There is a school of thought that says you defer taxes as long as possible. If that resonates with you then you'd go with traditional accounts. There is a school of thought that says it is better to pay taxes on a smaller piece of money now instead of a larger piece of money in the future. If that resonates with you then you'd go with Roth accounts.

What is your tax bracket? If you're lucky enough to be able to put $10,000 into a traditional account and you're not paying $2000 or $2400 in taxes on that money, that money stays in your pocket which is at the very least, appealing. I find it just as appealing to know that money in a Roth is accessible without tax for something unexpected once I turn 59 1/2 (some of it can be accessed earlier but that is beyond our scope today).

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