Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Another Reason Why Roths Rule

It's hard to find fault with Roth IRAs (and newfangled Roth 401(k) plans). With a traditional IRA, you invest pre-tax money, reduce your current tax bite, and have your ultimate withdrawals taxed. Fair enough, it seems. But with a Roth, you invest post-tax money, get no immediate tax benefit, but ultimately get to make withdrawals tax-free. That can be a big deal -- and much more attractive, especially if your investments have a lot of time to grow into a substantial nest egg.

The tax vs. no-tax issue is just one reason to favor the Roth, and if tax rates rise, that comparison might soon become even more pronounced.

There are several credible reasons why taxes might increase in coming years. For one thing, many companies are phasing out or eliminating underfunded pensions, which may leave taxpayers footing the bill. Those companies' obligations will get dumped on the Pension Benefit Guaranty Corp. (PBGC), which is government-sponsored and underfunded itself.

My colleague Robert Brokamp tackled this topic recently in "The End of Retirement," noting that "bankruptcies are becoming an acceptable way for companies to get out of their pension obligations." Many companies have troubling pension situations, including Goodyear (NYSE: GT  ) , Alcoa (NYSE: AA  ) , DuPont (NYSE: DD  ) , Motorola (NYSE: MOT  ) , and Electronic Data Systems (NYSE: EDS  ) . Meanwhile, some companies, including IBM (NYSE: IBM  ) and FedEx (NYSE: FDX  ) , have reduced or eliminated their traditional pensions.

Meanwhile, our military activities in Iraq and elsewhere are consuming a lot of funds, and our government's spending has not been reined in. For Social Security to pay future retirees what it pays their current counterparts, it will need some kind of financial infusion. Factors such as these suggest that sometime in the coming years, taxes will likely rise. As they do, they'll grab more and more of your withdrawals from traditional IRAs.

It's not great news, but it's news you can put to use, perhaps by shifting more money into Roth IRAs and Roth 401(k)s. Begin your decision process by learning more in our IRA Center, our 401(k) nook, and in these articles:

And by the way, we'd love to help you plan and save effectively for your future, via our Rule Your Retirement newsletter, which you can try for free. A free trial will give you full access to all past issues, allowing you to gather valuable tips and even read how some folks have retired early and well. It regularly offers recommendations of promising stocks and mutual funds, too.

Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. FedEx is a Stock Advisor recommendation. Try any one of our investing services free for 30 days. The Motley Fool is Fools writing for Fools.

Read/Post Comments (0) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 527927, ~/Articles/ArticleHandler.aspx, 10/21/2016 7:57:12 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
AA $26.88 Up +0.19 +0.71%
Alcoa CAPS Rating: ***
DD $69.70 Up +0.24 +0.35%
DuPont CAPS Rating: ****
EDS.DL $0.00 Down +0.00 +0.00%
2020 ChinaCap Acqu… CAPS Rating: No stars
FDX $170.20 Up +0.50 +0.29%
FedEx CAPS Rating: ****
GT $31.60 Down -0.14 -0.44%
Goodyear Tire and… CAPS Rating: ***
IBM $149.63 Down -1.89 -1.25%
IBM CAPS Rating: ****
MSI $73.62 Up +0.05 +0.07%
Motorola Solutions CAPS Rating: ***