To Roth or not to Roth
Many Defined Contribution retirement plan participants are uncertain as to benefits of allocating their contributions to traditional vs Roth options. This is for good reason. There are two key major determiners as to the benefit of contribution to Roth:
- Will they be in a higher or lower tax bracket in retirement?
- Will tax rates increase, stay the same or decrease in the future?
If you know for sure that tax brackets will increase in the future, the Roth option allows post-tax contributions grow and be withdrawn with no (higher) taxes later. Simple, however no one knows whether income tax will be greater during the balance of their contribution period, or in retirement, than it is today.
