“Assuming the 50% income tax rate which the author feels is coming by the year 2026 (if not earlier, after the election)…”
Once again, this is a blatant misrepresentation of me and my book. I never said that I feel any specific tax rate is coming by 2026, or any year for that matter. As stated previously, my concern is that it appears my book was hastily read through with the goal of having an ax to grind.
“Assuming the 50% income tax rate which the author feels is coming by the year 2026 (if not earlier, after the election), in the regular IRA example the clients would have another $27,500 to invest each year, outside of their regular IRA, as the tax savings generated by the $55,000 tax deduction.”
All of the calculations that Blase did for his review are based on a 50% Federal income tax on 100% of the invested dollars. As previously discussed, this is not the reality of the current tax landscape in this country, nor is it an accurate representation of my book. I have one short chapter (just 8 pages), where I calculate hypothetical future higher taxes “to see for myself” what the numbers look like. Blase then uses this hypothetical example as a basis for all of his calculations in his review. This is known as comparing apples and oranges and is also a straw man argument.
The examples in my book and the main calculations throughout my book all use real tax rates which exist today. And the overall theme of my book is that you should pay taxes when they are low and defer taxes when they are high. And since the Tax Cuts and Jobs Act of 2017 reduced tax brackets to the lowest rates in decades, we have an unprecedented window of opportunity to take advantage of historically low rates. Reading this critical review of my book without any knowledge of the content of my book itself, you would walk away thinking that my book is arguing to invest with Roth when taxes go up to 50% or higher. Nothing could be further from the truth.
“Now let's go back and add in the forgotten portion of the author's analysis described in the first section of this book review, i.e., the additional $27,500 in funds the couple will have available to invest each year under the regular IRA investment plan, beginning at age 40 and continuing through age 65 (i.e., on account of their not having to pay the Internal Revenue Service the full $55,000 in income taxes each year on a $55,000 Roth investment, assuming the same 50% marginal income tax rate the author assumes).”
It's discouraging to hear Blase refer to a portion of my analysis as “forgotten” when I have an entire chapter dedicated to this exact thing. (It’s called Higher Effective Contributions.) Even more, I discuss in this chapter that I did calculate what would happen if the investor who is getting a tax deduction on their tax-deferred account was investing the tax savings. And the result was that due to today’s historically low tax brackets, the Roth accounts still come out ahead. And so once again we have a straw man Blase has created, which is then very easy for him to tear apart. And that straw man is that I have “forgotten” about an extra $27,500 the couple in my book could invest if they get a tax deduction. Again, there is no 50% Federal income tax rate today and the married couple in my book is/was in the 24% marginal tax bracket based on a joint income of $300,000.
Summary
At the very beginning of my book (page 10), I warn that my book may have a very short shelf life. And the reason for this is that if taxes go up, Roth may not make mathematical sense anymore. The overarching principle I attempt to communicate in my book is that paying tax now and investing in a Roth would be a wise decision if taxes end up higher in the future when you are taking distributions. Instead of making this clear, Blase implies that my book is arguing for something else entirely, which is the use of Roth once taxes go up. And this is the direct opposite of my actual message, which can be summed up in this simple phrase concerning taxes from Chapter 4 of my book: “Pay Low and Defer High.”
When making a public statement about someone’s work, whether it’s praise or criticism, I strongly believe every effort should be made to give an accurate representation of what is being praised or criticized. Unfortunately, that was not done here. I hope this response will help clarify what I actually write in my book and clear up any potential misunderstanding created by James G. Blase’s review.
Will Duffy is the author of Roths For The Rich: How to Fund Your Roth With Over $100,000 Each Year.