Question

What should drive someone's decision as to whether to choose a Roth option or a traditional option? Do you think people make good decisions on these lines? Is offering both alternatives a good idea or does it just make the choices too complex?

Answer 1

a)Traditional option is availed when it is predicted that future tax bracket to be lower which can only happen when one has lower salary in the future, whereas , if someone believes that their future income would be more i.e. their corresponding tax bracket will also be higher then one goes for Roth option.

Basically the main determinant of these options is income.If the prediction is that the future income will be higher then one should go with Roth option, if it is believed to be less then traditional option and if it is believed that the salary would be same then it is upto the individual to decide.

b) If a person thinks that he will have a higher future income then start contributing their after tax money and secure their future income which would be tax free and hence saving on future taxes.

If a person thinks that he will have a lower future income then he would opt for traditional option.

Hence if someone selects the correct option then he can save on his taxes.

c) Anyone having a good visionary can make his decision effectively and it would be not at all complex. One can save on his taxes if a well thought of action is undertaken.

Regards.