Why ROTH doesn't make sense to me

Our AGI is above the Roth contribution phase-out limit, so we can't contribute to a Roth IRA anyway.

The Roth IRA allows you to contribute after-tax money into a retirement account, where future withdrawals after retirement age are income-tax free. The reasoning behind this is that one might expect to be in a higher tax-bracket come retirement age. That argument only holds water if you expect to SPEND as much as you do now.

Most people between the ages of 25-35 will have a rent/mortgage payment, a car loan payment, student loan payments, entertainment spending at bars/restaurants. Those really add up in terms of money being spent. By the time I retire, I don't expect to still be paying off any loans, which means the biggest reason for recurring income is nullified.

What if we move to a Value Added Tax like in Europe? A lot could happen in 30 years. Sure, your Roth withdrawals won't get taxed as income, but what are you going to do with that money? Spend it on goods/services. That pretty much means you've gotten taxed twice -- in 2008 when you put your money into the Roth, and in 2040 after you've retired and you bought a new set of golf clubs + 15% VAT. I don't play golf by the way. I hope I don't do that when I retire either.

So take advantage of the tax savings in a 401k for the NOW especially if your company offers 401k matching contributions, or a traditional IRA if you qualify. The Roth IRA is betting that your life situation will be more income-tax heavy after retirement. Who can see that far into the future? Instant gratification in this case is a good thing.

This post assumes you follow the generally accepted best practices of personal finance which are: Spend less money than you earn. Save the remainder. Grow that savings in dividends, investments, or interest.

Afterthoughts: Roth could make sense for the teenager getting a first-time job. If you have kids, and you've educated them in the merits of saving money, living frugally, etc, then encourage them to put their earnings into a Roth account. A teenager's first-time job is probably going to be taxed minimally anyway, so the Roth is ideal in that situation. Plus, that gives the Roth an investment horizon of at least 40 years.

Tax deadline draws near

We already got our refund back in March. Having gotten married in 2007, we'd procrastinated in adjusting our withholding forms, so when we filed in February, we were due a hefty refund of nearly $3000. However, we'll have to pay almost $600 to California.

But we finally readjusted our withholding, so we'll probably be owing money for 2008.

IRS Withholding Calculator
California Withholding Calculator

I actually find the California withholding form more complicated than the Federal, but at least the calculators help simplify things.

We filed using TaxCut Premium. I bought the retail box CD and plan on keeping it. I had a 2006 filing from Taxcut, but 2007 could only import small amounts of data, and not display my whole 2006 return which I hadn't printed. So I had to frantically scrounge around looking for TaxCut 2006 software in order to print my 2006 returns from the taxcut file. Lesson: always print your tax return and also save a .pdf or .mdi of it.

Perhaps I'll go to web-only tax returns in the future. That way it's platform-independent. The reason I went to TaxCut is because the CD software can install on either Mac or PC. Going Online makes it even more cross-platform. I can imagine doing my taxes on my iPhone, but that would be overkill eh?