Which of the following clients is best suited for a Roth IRA instead of a Traditional IRA?
• Someone who is in a high tax bracket now and expects to be in a much lower tax bracket in retirement. • Someone who is in a low tax bracket now and expects to be in a much highertax bracket in retirement • Someone who is covered by a retirement plan at work and can only make a non-deductible contribution to a Traditional IRA because of a high income • Someone who is in a moderate tax bracket now and expects to be in a lower tax bracket in retirement • I & II • II & III • II, III & IV • I, II, III & IV The correct answer is “b”: the Roth IRA is the better choice for client II, since the IRA deduction is worth less to someone in a low bracket and the tax-free withdrawals will be more valuable to someone in a higher bracket. Also, it’s always better to make a non-deductible Roth IRA contribution than a non-deductible Traditional IRA contribution. The clients described in I and IV expect to be in a lower tax bracket at retirement, so they may be better off taking the tax deduction now.
