I've been trying to figure out how a Roth IRA is beneficial for a high-income earner. Here is my understanding. Roth IRA is post-tax and one benefit is when you expect your withdrawal rate in the future to be higher tax bracket than your current tax bracket, thus minimizing taxes (though you cannot predict what future tax brackets will be). High-income earners are already at the highest tax bracket and I would assume (at least for myself) that their annual income in retirement would place them in a lower tax bracket. In this case, pre-tax contributions would be more beneficial than post-tax contributions (assuming no change in tax brackets).
Usually the 401k accounts would be maxed out first. I could see the Roth IRA being one of the next best accounts to invest in, with its primary benefit that your earnings and withdrawals will be tax-sheltered. It is superior to a traditional IRA because although earnings are tax-sheltered, but will owe taxes on withdrawals.
Therefore, I would say a Roth IRA is a useful vehicle for tax-sheltered investing once the 401k is maxed out (in addition to HSA, 529, etc). Would you agree with my reasoning?
edit: clarify high-income meaning exceeding Roth IRA limit
Submitted February 10, 2017 at 08:35PM by xilex http://ift.tt/2lAqfNz
