If there is still money in the account once the opener has passed the ROTH account can be rolled to a new generation and continuing to grow until the new beneficiary needs it, and rolled over for of 3 generations.

If you open a Self Directed Roth IRA you then have an account that is much more flexible in what it can invest in. Creating a positive monthly cash flow inside a Roth IRA is very powerful for ones retirement.

I hope everyone that can possibly take advantage of the coming 2010 conversion does do that with all the cash they can. As well as taking advantage of deferring the tax burden over several years. It’s just 3 months away now.

From talking with people about IRA investing and retirement most folks don’t seem to consider how inflation will affect their nest egg. If you have 1 million today it’s not going to be worth that same amount in 20-40 years. So your really going to need a significant amount more than what you think.

Sorry it took so long to respond to to your comment. Actually, I agree with your assessment. I have a different perspective though. With the investments that I’m doing, an investor has the opportunity to increase the asset base in his IRA significantly by the time he retires, even if he only has 15-20 years left before age 59 1/2. And there’s no reason to stop investing just because you’ve reached that age.

I guess if you really boil down what I’m saying to its bare essentials, I am saying at least one of the same things as you. Choosing between a Traditional and a Roth should be based, at least in part, on your projected assets at retirement, understanding that you’re not going to know this for sure. And your projected asset base can only be determined by using expected rates of return.

My point is this: If you know that you have some specialized knowledge that will allow you to consistently get significantly higher returns on your investments and you use that knowledge for investing in your IRA, you will be much better off over the very long run.

With the investments that I do, if you have 40 years to use those investments to grow your IRA, your assets could grow well into the millions of dollars. Which would you rather pay tax on, $200,000 ($5,000 x 40) or $2,200,000 (say) that your assets grow to?

Here an example. If you’re in the highest tax bracket today – 38% – you would pay that marginal rate on your contributions to a Roth IRA each year. Over 40 years, if that stays constant, you would contribute $200,000 and pay $76,000 in taxes on that amount.

If you use a Traditional IRA and grow the account to $2.2M and then take 4% out each year, your first year’s income would be $88,000. Using today’s marginal tax rates (10%, 15%, 25%) and claiming the standard deduction plus an additional amount (say $6000) that you could deduct, you would pay over $13,800 on a taxable income of $70,600, just in the first year (filing as a Single).

Now say everything stays constant. You remove $88,000 every year for the next 20 years. That’s over $276,000 that you would pay in taxes in those 20 years versus $76,000 over 40 years. With a Roth, you get to keep every penny of that $276,000.

It doesn’t stop there. When you die, your IRA gets inherited and your heirs are now stuck with that tax burden each year. I’m don’t know that much about inherited IRAs so I won’t get into that, but with a Roth, even your heirs don’t have to pay taxes (in most cases).

From my perspective, your projected assets when you retire is a large consideration.

The chance of you working for 40 years with no break or lower income is slim, even if it’s due to your wife staying how a few months after having a baby. Between the mortgage interest property tax state tax, you can drop back down.

I understand that taxes may (will?) increase. But consider, retirement accounts skim off the top, at your marginal tax rate. Withdrawals first get to be withdrawn at the zero rate (standard deduction or itemized deductions, plus exemptions) then the 10,15,25% brackets. Single, today, a retiree would need nearly $2M pretax for withdrawals to put him into the 28% bracket.

If you’re not comfortable choosing between the two, I have no issue with Mike Piper’s advice and simply split the funds. In the 25% bracket, your chance for error is minimal. It’s when I see 33% bracket people with little savings load up on Roth, I wonder.