Ang - in most cases, if you are planning to hold the account for a long time period, I would recommend the ROTH. The compound value of returns over many years is likely to matter more than your current and future tax rates. Even if your marginal tax rate declines, a ROTH is likely to be a better option if the holding period is long enough. Moreover, the correct comparison is not necessarily ROTH vs. tax-deferred but rather ROTH vs. taxable, because your contribution limits are nominal not tax-adjusted.
I have put together a financial guide on the topic that you may find helpful. It can be found here: http://www.brightscope.com/financial-planning/advice/guide/1783/Five-Factors-To-Consider-In-Comparing-Traditional-Retirement-And-Roth-Accounts/ You can run your own estimates using a model we have developed here: http://roth.nc.am.
Everyone has heard about diversification. Well, it might be a good idea to diversify your retirement accounts from a tax perspective. That means have both tradtional 401(k) and Roth 401(k) account balances. This will give you more flexibility in retirement. One suggestion - if you have a balanced investment portfolio of stocks and bonds in your 401(k), put most of the stock funds in the Roth 40(k) account and most of the bonds in the traditional 401(k). You want the Roth 401(k) to grow as much as possible up until and after retirement - providing a larger pool of money to tap into tax-free. The bonds in the traditional 401(k) won't offer as much growth potential but this also means you won't be required to take as much taxable money out after age 70.5. Food for thought.
Ang - A benefit of the ROTH IRA that is often overlooked is that there is no requirement to take a distribution if you don't need one, as there is with IRA and other qualified retirement plans. Furthermore, distributions do not add to other taxable income sources like pensions, social security, IRA and 401k distributions, so they don't force you into a higher tax bracket. Finally, if you take a look at current tax tables you will see that tax rates are charge on ranges of income. What that means to you, is that if you make $69,000 now, and make only $50,000 in retirement you will be in the SAME tax bracket. If you have no deductions in retirement that you had while you were working, you could find your taxable income stays the same or even goes up. A Roth IRA is a great way to diversify and reduce your tax liability. There are many other estate planning benefits to a ROTH IRA that you don't get with other qualified plans, too. So, in most cases, I must agree that it is a good idea to have a ROTH IRA or ROTH 401k. Best wishes...
Hi: there has been alot of hype about Roth accounts and the advantage they have: the main advantage being the tax free withdrawal feature, since they represent after tax contributions. However, unless you are sure that you will be in a higher tax bracket in retirement, there is no tax benefit. Many people confuse effective rates with incremental rates, and if we assume the current rates stay in effect: you would need a portfolio of a couple million dollars to generate income that would be taxed mostly at the highest incremental rate. In fact, most people will be at a lower rate in retirement than their current incremental tax rate today. This is true because of the 10 and 15% brackets, which I assume no politician would come out against it. If on the other hand, you are interested in leaving a legacy-then the Roth account would be superior, as there are no required RMD's.