Retirement planning

Although I've been ranting about politics lately, I wanted to get back to some of the tax planning issues I wanted to focus on originally.

I'm often asked about which retirement plans clients should fund; 401k's, IRA, Roth IRA's, etc....the choices can be overwhelming.

In general, my suggestion is to prioritize your retirement savings as such;

1) Fund at least the company match in any company sponsored 401k, SIMPLE, or other company plan.
2) If you still have the ability to fund more... max out your 401K or SIMPLE.
3) If you can put yet more money in a retirement plan, max out your deductible IRA.
4) Finally, max out your Roth IRA.

While the Roth IRA sounds great because of the tax free nature of the plan, they are not deductible. In Gordon's world, why pay tax today when you can pay tax tomorrow.

For the average worker, your marginal tax rate is higher than it is at retirement. For instance, most professionals are in the 25% tax bracket, when they retire, most retire in the 15% bracket. Why not take the deduction today in the higher tax bracket?

This strategy changes if you anticipate a fairly large inheritance, you already have large retirement account balances, or you presently happen to be in a low marginal tax rate.


If you need additional tax planning information, feel free to call my office.