A recent Wall Street Journal article caught our attention because it turns some conventional investment wisdom on its head. The article, “Roth IRA and 401(K) Accounts Can Hold Advantages For Older Investors,” suggests that those investors who expect their marginal tax rates to remain the same in retirement may benefit from Roth investments as much as younger investors do.
According to the article, more specifically, older investors may benefit from the tax-free withdrawals they can take from these accounts when distributions from a regular 401(k) or IRA would push them into a higher tax bracket.
“Moreover, workers in their 40s, 50s and early 60s who want to contribute the maximum to a tax-advantaged retirement savings account can accrue more wealth with a Roth than with a traditional 401(k), even if their marginal tax rates actually decline by as many as 10 percentage points in retirement,” said Stuart Ritter, a senior financial planner at T. Rowe Price.
If you’re uncertain whether you might benefit from this unconventional investment strategy, contact your attorney or financial advisor to discuss its potential benefits for your portfolio.