It is my understanding that the difference between a Roth IRA and a standard IRA is that the former uses after-tax dollars as contributions and the latter uses pre-tax dollars as contributions. Since Roth contributions have been taxed once they are exempt from taxation when withdrawn. This includes any gains. Qualified withdrawals from a Roth are exempt from any personal tax, period (as the law stands now.)

That said, in my opinion it is always better to maximize your 401(k) before investing in any other IRA type product. This statement assumes your employer offers matching funds to you 401(k) contribution. Matching funds provide instant return on your money. Over the years this free money (matching contributions) could compound into quite a sum!! But, funds withdrawn from a 401(k) account are taxed at your current rate when withdrawn, the principle as well as any gains.The favorable tax treatment of 401(k) contributions is why they are restricted in amount.

These are my opinions based upon the way I understand the system currently. All of this could change with the stroke of a Presidential pen! Under the current legal environment regarding IRA and personal retirement accounts, it is always better to defer any tax payment to when you are of the age and income that dictates your lowest tax exposure.

Historically, there has been more money in the economy when the tax rates are lower. The economy is like a large company or corporation. If you take money out of the company (increase taxes), how do you expect the company to grow?

When the rich get richer, the poor do better, because the rich are more frivolous with their money. When you start taking money away from the rich, through taxes, they become, relatively, frugal.

An important difference between the high top tax rate, high growth period and the low top rate below average growth period is the tax bracket the top rate applied to. In the faster growth period the top bracket averaged 97 times per-capita GDP. In the recent slow growth period the top bracket has only averaged 7.2 times per-capita GDP. Today 97 times per-capita GDP would be, $4,446,700 vs. our top bracket of $357,701. IF you measure by economic vitality, the Reagan revolution looks like a dud to me. We probably would be better off with a higher top tax rate and a dramatically higher bracket.

But…when I die, whatever is left in those tax-deferred savings instruments will be hugely taxable for my estate. My son will inherit a small fraction of a lifetime’s worth of scrimping and scrounging. The only way we baby-boomers can help our kids stay in the middle class will be to pass assets to them. So if you’re an old bat like me and you’d like to pass financial security along to your hypereducated kids who are watching living-wage jobs disappear and expecting to spend their lives in low-paid dead-end jobs while taxes rise to orbital levels, you’re better off with Roth IRAs or even ordinary boring non-tax-deferred mutual funds, so that your estate will pass to the kids with the lowest possible tax gouge.

Also interesting comments, especially from those suspicious of the value of the 401(k). I had not previously thought about the effect of increased tax rates.