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Recently I wrote something on the question of whether what I call Rothing is mandatory. I am planning on taking credit for making Roth a verb, since I haven’t noticed anybody else doing it. Peter Coy in a piece in the New York Times, The Retirement Maneuver More People Should Be Making, used the term Rothification. A traditional IRA or 401(k) or similar account allows you to defer tax on the amount contributed and the account earnings. You or your heirs are taxable when money is withdrawn. If you exercise a Roth option either in the original contribution or in a subsequent conversion taxes are paid up front, but there is no tax at all on withdrawals after 59 1/2.
The Extremes
Peter Coy’s piece expresses a moderate balanced view that some people should run numbers to see if a Roth conversion might make sense. It is not one of the extreme views. One extreme view is the one I lean into a bit into without embracing. Paying taxes now that you don’t have to pay now for the prospect of lower taxes in the future, possibly decades in the future, is preposterous – equivalent to hitting your head against the wall because it feels so good when you stop. That is not the view we will be discussing here.
The other extreme view is that you should always be Rothing all the time. You can get this view from Suze Orman or Dave Ramsey.
Dave Ramsey has a five step plan to win with money. Step 4 is save and invest. Diving into the details of that when it comes to retirement savings, he recommends that you do a traditional to the extent you are getting a match and then go all Roth.
His discussion of the reasoning is really interesting. He relates that when Roths first came out he spent a lot of time on the numbers. In order to do an apples to apples comparison, he figured that you had to assume that there would be less money going into the Roth than the traditional. Ramsey comments that that is the “math nerd” way of thinking. When I built a very simple model, ignoring many devilish details, using that sort of thinking, I came up with Roth and traditional dead even.
In Ramsey’s view that is not the way people behave. They decide how much money is going into retirement. If they choose Roth they are effectively putting more money in. As he puts it “We trick you into saving more”. The problem is that you are not accounting for what might have been done with the tax savings when you adopt that reasoning. Ramsey’s answer is that nobody is going to blame him when they are sitting with a ton of tax free money when they are 75.
The Most Compelling Reason For Early Rothing
If you are certain that you will be in higher tax bracket in retirement the case for Rothing is very strong. How can you be certain though? Well some people get to near certainty by observing that rates are are at historically low levels and looking at existing problems that seem to ultimately call for more tax revenue. Consider this joyful reflection on the website of Mountain River Financial.
“Tax rates are going to go up. Consider the following: historically speaking, we’re currently in a very low income tax rate environment – particularly those in the highest tax brackets. Our national Debt continues to skyrocket to all-time highs with no signs of slowing down despite our economy doing very well. As a society, we’re warming up to expensive policy issues like subsidizing college tuition, cancelling student loan debt and offering universal healthcare, among many others. We also already have entitlement programs like Social Security that are quite underfunded and in desperate need of an overhaul in order to remain viable, particularly as baby boomers increasingly leave the workforce and begin to take their benefit payments. For these reasons and others, the current, low-tax environment simply can’t continue indefinitely. Tax rates are going to go up. It’s not a matter of if. It’s a matter of when, and when is looking increasingly nearer.”
There are two questions here. One is whether rates are at historically low levels. The other question is whether raising rates is the only way to adjust the need for future revenue increases.
Are Rates Historically Low?
I really went down a rabbit hole on this one. Here are my main sources – a historic table of federal income taxes 1913-2013 and an inflation calculator. With them and simply looking up more recent rates, I constructed a spreadsheet that I call top rates. You will find that the average top rate year by year was 56.55% which is a lot higher than the 37% top rate for 2025. That looks like case closed in favor of always Rothing all the time, but we need to consider how real those top rates were.
The table shows the top rate each year and the threshold where that rate kicked in for single taxpayers. Next comes that threshold restated in 2024 dollars. What we find is that the nosebleed rates of 70% and more only applied to incomes over $2 million in current dollars until 1965 when the top bracket of $200,000 was cut to $100,000. This corresponded with a cut in the top rate to 70%, which was lower than it had been since 1935. The $200,00 top bracket was in place from 1942 to 1964 with top rates varying between 88% and 94%. In 2024 dollars that $200,000 bracket threshold was worth $3.8 million in 1942 and $2 million in 1964. Further back there are some mind boggling numbers. The 79% top rate in effect from 1936 to 1940 on incomes over $5,000,000 applied to incomes over $100 million in 2024 dollars.
We do see the 70% bracket when adjusted, at levels similar to and lower than than the current 37% bracket of $626,350 until it is cut to 50% in 1981. For a few years previous to that 50% had been the maximum tax on personal service income. The 50% rate is a different story. From 1917 to 1923, it kicked in at above $1.5 million in 2024 dollars and it is a similar story when it comes back from 1932 to 1941. From 1941 to 1986, though the 50% bracket starts in 2024 dollars much lower than the current 37% rate. For example the $41,500 in 1981 adjusts to just $143,213. So there is some solid historic evidence to be afraid of the top rate going to 50% unless of course you think 1981 is ancient history.
Are Rates Bound To Rise Significantly?
Just to shake your certainty though you might consider that the highest top rate we have seen in the table since 1987 is 39.6 %. And there is that curious period from 1988 to 1990 where the top rate kicked in at a very low level, but was only 28%. That was the result of the Tax Reform Act of 1986, which made my career. And that huge rate cut was designed to be revenue neutral. Now you will find that people will generally approve of tightening up the Code in general in order to cut rates, but any provision that you can think of and several that you cannot will have a fierce constituency. Still we cannot rule out that the future revenue requirements will be met by tightening the Code rather than by raising marginal rates.
And the there is the possibility of rates disappearing entirely. Every year there is an attempt to get Congress to consider the FAIR Tax, which is essentially a 30% sales tax replacing the income, social security and Medicare taxes. And just recently President Trump has floated the idea of eliminating the income tax.
Our President waxes poetic about how great things were from 1870 to 1913. It reminds me of a satiric song by the Chad Mitchell Trio called Barry’s Boys (referring to Barry Goldwater). It opens with the line “We’re the bright young men who want to go back to 1910”. So much for higher future rates, if this type of thinking prevails.
Conclusion
Rothing for a very lower earner is kind of a no brainer, assuming that there is a way of funding it. The funds might come from a parent or grandparent. There is also the possibility that you have very irregular earnings but ample resources. So regardless of what you do in the fat years, you might Roth in the thin years. People in their fifties and beyond should probably start running numbers on conversion analysis particularly if they are contemplating early retirement.
What I find really hard to conclude on is people in their thirties and forties with solid incomes. When they Roth currently they are paying taxes they don’t have to pay for the prospect of lower taxes thirty or forty years in the future with all the uncertainty that entails. When I asked the smartest tax guy I know in that age bracket what he is doing personally, he told me that he Roths some of his 401(k) as a sort of tax diversification. It is not a really satisfying answer, but it is the best I have for now. I am going to keep looking.
For great value continuing professional education. I recommend the Boston Tax Institute
You can register on-line or reach them by phone (561) 268-2269 or email vc@bostontaxinstitute.com. Mention Your Tax Matters Partner if you contact them.
Originally published on Forbes.com.
For articles oriented toward tax professionals check out Think Outside The Tax Box.
My new book Reilly’s Laws of Tax Planning is now available from TOTB