With "Roth" IRAs and 401(k)s, you forego a current tax benefit for your contribution to a retirement account in exchange for being able to make retirement withdrawals tax-free. Your implied bet is that you will get a bigger benefit from future tax-free withdrawals than you would from deducting your contribution now. If your tax rates are likely to be higher at retirement than today, it favors a Roth plan.

Greg Mankiw has a piece that makes the Roth plan sound like a good bet. He quotes a letter from the Congressional Budget Office:

With no economic feedbacks taken into account and under an assumption that raising marginal tax rates was the only mechanism used to balance the budget, tax rates would have to more than double. The tax rate for the lowest tax bracket would have to be increased from 10 percent to 25 percent; the tax rate on incomes in the current 25 percent bracket would have to be increased to 63 percent; and the tax rate of the highest bracket would have to be raised from 35 percent to 88 percent. The top corporate income tax rate would also increase from 35 percent to 88 percent.

The farm bill boondoggle isn't going to help any.

If the betting markets are any indication, we won't have to wait long for higher rates.

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