Hacker News new | ask | show | jobs
by refurb 1251 days ago
Why can’t you have a Roth IRA? Japanese taxes?
1 comments

Post-tax US retirement accounts (e.g., Roth-IRA/401K, etc.) are generally seen as normal investment accounts by the tax authorities in the US expat's country of residence. Therefore they offer no retirement tax benefits.
Roth's aren't as useful as people make them out.

1) In a traditional (vs a roth), you save taxes at your marginal rate today. 2) In a traditional (vs a roth), you save on state taxes today. 3) you can take those tax savings and invest them in a taxable account (or spend them on things you need to spend them on)

4) In retirement, if your income is lower than your income today, your tax rate will be lower, so the savings of not paying on disbursments from the Roth will be lower.

5) In retirement, you have more ability to choose where you live, i.e. can live in a tax free state (or move overseas) and hence just have federal tax liability on the disbursements (at a lower overall rate if income is lower).

6) A roth is a promise of a benefit in the future vs a traditional giving you a benefit today. It's hard to take away a benefit already given, while I don't expect the roth rules to adversely change, there's still risk.

Now, a big benefit of the Roth is for people who can't save and are bad financial planners. "prepaying" the tax, even if its worse decision overall, is better than blowing the immediate tax savings of a traditional on "hookers and blow".

Another big benefit of a roth is if one expects tax rates to severely rise, prepaying tax at a much lower rate vs a future possibly higher rate is a benefit (but one has to factor in the ability to get out of state taxes in future as well, so if your state tax rate is nearin 10%, does one expect federal future tax rate to really be 10% higher than today).

Over a long period of time if one has high income in retirement, a Roth probably is better (even if the traditional tax savings are invested). However, at those income levels, I don't think it actually matters much as the difference wont be huge (in terms of savings/income). If one expects retirement income to be reduced relative to one's current income, traditionals become much more attractive.