Boots And Sabers


By - Mar 23rd, 2009 07:47 pm
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I’ve been struggling with a financial question lately.  As part of our retirement strategy, we have been contributing to a Roth 401(k).  In a Roth 401(k) we pay the taxes at our current rate, but the distributions when we enter retirement will be tax free.  In a traditional 401(k), the contributions are tax free, but the distributions will be taxed at whatever rate is applicable then.  The Roth 401(k) part of our retirement plan is predicated on the assumption that we will be in a higher tax bracket at the time of retirement, and that the dollar will still be worth enough to make it a value compared to a traditional 401(k).

With the AIG fiasco and such, I’ve been struggling with the viability of a Roth 401(k).  There isn’t a guarantee that the government won’t change their mind in 20 years and decide to tax the distributions from a Roth 401(k).  If they decide to do that, it would mean that we would be taxed for both the contributions and the distributions from the fund.  Even though we hope to be in a higher tax bracket when we retire, would it be wiser to leverage more heavily in a traditional 401(k) and the other retirement funds with tax-free contributions?

The frustrating thing is that my consternation is not driven by financial considerations.  If it was a pure financial decision, I’m satisfied with our current distribution.  My consternation, however, is driven by distrust in government.  I have lost faith in the certainty that government won’t change the rules down the road as they are trying to do with AIG.

What are y’all doin’?

Categories: News & Views, Politics

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