My Comments: As a financial planner for longer than I can remember, there has always been tension around the question of whether or not to have an individual retirement account, or IRA.

The IRS makes the rules that allow someone to put earned income in a special account with tax advantages. You know what I mean; defer taxes now and simply pay them later when you take a distribution from the account after you reach age 60.

The tension I feel is between the idea that you actually get more money at the other end compared with the psychological benefit caused by your belief that that you will get more money at the other end. I’ve never been convinced that you actually do get more money at the other end.

Yes, the ability to not pay taxes this year is nice. The ability to not pay taxes on the earnings attributable to those funds each year that goes by is nice too. But then you get to pay the tax anyway when you retire, and there’s no assurance that the tax rates are not going to be the same if not higher then than they are now.

Couple that with the angst you always get when you make decisions on how that money should be put to work. Do you invest in the stock market? Do you simply put it in a CD at the bank? Many of us suffered tremendously in 2008 and 2009 when the bottom fell out of the markets. Has your account grown back to the levels it reached before the meltdown?

I think the strength of the idea comes from the myth that you really do get more money. It comes from the fact that if you believe the myth, then you actually set money aside which you cannot spend now so that it shows up down the road as spendable income. Without that perceived incentive, our savings rate would be much less than it is now. And that’s a good thing.

But it happens for psychological reasons rather than because you benefit from the tax deferral or because you’ll be in a lower tax bracket.

This article doesn’t talk about this tension I feel. But it does tend to dismiss the idea that tax brackets today influence whether you actually open and fund an account or not. And it ignores what I think are the advantages of a Roth IRA if you are a relatively young wage earner.

By Eric L. Reiner

An intriguing industry white paper aimed at politicians may offer something for advisors as well.

The Tax Benefits and Revenue Costs of Tax Deferral, published by the Investment Company Institute on September 11, ostensibly rebuts those in Washington who say tax-deferred savings opportunities overly benefit high tax-bracket individuals. In doing so, the study reveals much about the benefits of saving on a tax-deferred basis.

Although the report is recent, many of its conclusions were presented three years ago at an Urban Institute gathering by the paper’s author, Peter Brady. He is senior economist at ICI, the fund industry’s Washington, D.C.-based trade association.

The report advocates a lifetime model for quantifying the benefits of tax-deferral. “The benefit is not equal to the up-front reduction in taxes,” ICI asserts. That is only part of it. You also must factor in the tax that would have applied to the investment earnings during the deferral period, as well as the tax due upon withdrawal.

“Therefore, the tax benefits and revenue costs of deferral depend on how much investment income is generated and how much tax would have been generated by that income, which in turns depends on the rate of return earned, the length of deferral, and the character of the income,” according to the report.

In other words, tax brackets are not the only variable affecting the benefit of saving on a tax-deferred basis.