Here's Why I'm Not Using a Roth Retirement Plan for My Long-Term Savings

I've been saving for retirement for many years now. (Does that officially make me old?) And while it's not always easy, I know it's important. 

The idea of not being able to pay my bills is a scary one. I'm hoping that if I save enough, I won't have to worry about that down the line.

In the course of my retirement savings, I've funded a traditional IRA and a traditional 401(k). But I've yet to put money into a Roth retirement plan. Here's why.

I'm trying to maximize my tax savings

With a traditional IRA or 401(k), you get a tax break on the money that goes into your account, up to a certain annual limit. This year, the limit, if you're under 50, is $6,500 for an IRA and $22,500 for a 401(k). If you're 50 and older, it's $7,500 for an IRA and $30,000 for a 401(k). 

Now, the downside is that with a traditional retirement savings plan, you're looking at paying taxes on your withdrawals in retirement. That's yet another expense to worry about.

Roth IRAs and Roth 401(k)s allow you to take tax-free withdrawals, which is a huge perk. But they also don't give you a tax break on your contributions. And that's why I'm not saving in a Roth.

Since I'm pushing myself to work very hard these days and maximize my earnings (largely to cover the exorbitant cost of raising kids and sending them to college), my income puts me in a fairly high tax bracket. I don't expect to work or earn as much in retirement, so I'll likely be in a lower tax bracket at that point. I'd like to get my tax break at a time when it's worth the most to me.

In other words, let's say I'm in the 32% tax bracket now. A $6,500 IRA contribution would save me $2,080 on taxes. But let's say that come retirement, I'm in the 24% tax bracket. A $6,500 withdrawal would result in $1,560 of tax savings. 

The one flaw in my logic

I think my logic in choosing a traditional retirement plan over a Roth is pretty solid. But it does have one gap, and it's that we don't know what tax rates will look like in the future.

If tax rates go up across the board, I could end up with a higher tax burden in retirement despite having a lower income. So that's a chance I'm taking. But for now, I feel that it makes sense to take that risk. I really don't want to give up the tax break I get on my traditional retirement plan contributions. In time, though, I might shift over to a Roth for savings purposes if my income declines and I find myself in a lower tax bracket.

What's the best savings plan for you?

If you expect to be in a higher tax bracket in retirement than you are now, then a Roth IRA or 401(k) makes sense. Think about your current and future income picture when making your decision. 

Of course, you can't magically see into the future. You may want to hedge your bets and split your contributions between a traditional retirement plan and a Roth to get the best of both worlds -- some tax savings now, and some in the future.