A lot of Roth supporters tout the benefits for younger workers. After all, those are the workers who may be in a lower tax bracket now than they will be later, and younger workers have the benefit of years of potential market earnings which may someday be taken as tax-free distributions. These are great reasons for those millennials to sign up for Roth contributions or conversions right now.
But there are benefits to workers in all places along the career spectrum. Generation X and baby boomers, Roth is for you, too.
First, consider the tax bracket where you might be when you retire. Some workers may be in the same tax bracket after they retire if they are being taxed on the full amount of retirement plan distributions. But think of what might happen if some of that money becomes tax-free on distribution—it could actually lower your tax bracket in retirement. Consider whether you’ll be taking a large distribution during any year (maybe for a big trip, a new car, or to help pay for a wedding). Now think of the flexibility of taking more money during that year without paying a larger tax bill. Roth can help make that happen.
Another great reason for more experienced workers to take advantage of Roth contributions are the increased contribution levels for workers age 50 and over. These workers have access to “catch-up contributions.” That means that they can contribute an extra amount on top of the normal contribution limit. The normal contribution limit for 2015 is $18,000 for both 401(k) and 457 plans; the catch-up contribution adds an additional $6,000, for a grand total of $24,000 in contributions allowed for each plan, for each year. That $24,000 can be made up of pre-tax or Roth contributions, or a combination of the two. These increased contributions are only available to you if you have the age experience to qualify!
And finally, consider your estate plan. You may be thinking about ways to reduce taxes for your heirs. Depending on your situation, your plan could include a Roth account. That Roth account can continue to grow for its future owner(s).
So those are three great reasons to consider Roth contributions. Take control now, and think about what will be best for you in the next phase of your life. Just make sure you leave at least 5 years for the Roth contributions to sit in the plan before you’ll need to collect on them.