Roth IRAs, 401(k)s for all? Not so fast, advisors say

investmentnews.com:

InvestmentNews columnist Ed Slott got a lot of people thinking about Roth IRA and Roth 401(k) strategies this week — and whether traditional tax-deferred saving should be anyone’s go-to in the current tax environment.

In his column Monday, Slott urged advisors to be “sounding the alarm” about growing pretax balances in 401(k) and individual retirement accounts and suggested they “have clients start making Roth IRA and Roth 401(k) contributions instead.”

However, advisors took some issue with the idea that tax deferral isn’t the way to go for every client.

Not everyone should stop contributing to traditional IRAs and 401(k)s, said Tim Steffen, director of advanced planning at Baird Private Wealth Management.

“I simply don’t agree with that,” Steffen said. “Not everyone is going to be in a higher [tax] rate than they are right now. If you’re somebody who is in your highest earning years right before retirement … it’s very possible that you’ll have lower rates in retirement.”

Income at the beginning of retirement is often low enough to put someone in a lower tax bracket than they were while working, although that changes during retirement, and people tend to go up in tax brackets, Steffen said. Rather than eschewing traditional 401(k)s and IRAs altogether, savers should consider what their average tax rates will be throughout retirement — and that figure, for many, will be lower than their marginal rates today, he said.

Roth accounts “are a hedge against the uncertainty of what future higher tax rates can do to your standard of living in retirement,” Slott wrote. Although tax deductions are lost when using Roth strategies, that’s a good thing, he said, as “the tax deduction has no real long-term value.”

“Tax deductions