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Aren't you ignoring the advantage of being able to invest the money you would have paid in taxes for the entire time you've left it all in the tax-deferred acco
by newnewpdro 7y ago
Aren't you ignoring the advantage of being able to invest the money you would have paid in taxes for the entire time you've left it all in the tax-deferred account?
I don't get why you're assuming you'll have to withdraw the money prematurely and incur the penalty. That's a rather pessimistic attitude, and it's not like you'd be putting all of your investment funds down this path.
- alexmingoia 7y agoYou have to withdraw at some point (after age 59-1/2 unless the law changes), and you’ll pay income taxes on principle and gains then. Taxes on principle will be paid either way. If you give to your children, they will pay taxes on the principle + inheritance tax. The idea with tax deferral was that when you retire, your fixed withdrawal income will have a lower income tax rate than when you contributed, but as capital gains and income tax are now, that isn’t necessarily true depending on your contribution and withdrawal income. Roth IRA was then created as a response to the well founded concern that income taxes will rise negating any tax advantage to deferral, but Roth wasn’t able to pass the legislation without severe compromises like contribution limits, and gains taxes as income on withdrawal.
- newnewpdro 7y agoYou pay tax on it eventually, like you said with the lower tax rate when your income will be presumably lower. But in the mean time, which can be a very long time, you're free to invest those deferred tax dollars. That can add up to a significant amount, over a large number of years. It's not something to trivially dismiss.
- deleted 7y ago[deleted]