Now that Google Bard is available for use, we’ve begun testing to see how well it can provide financial advice. We’ve previously been testing AI services provided by OpenAI on the same question. Building on these studies, we took a look at Google Bard to see if how it compares. Google’s foray into AI chatbots is a promising first step for the tech giant.
Asking Google Bard about IRAs
One of the most common questions any financial planner gets is whether a client should use a Roth IRA or a Traditional IRA. Let’s see how well Google Bard does in explaining the differences.
Can you explain the differences between a Roth IRA and Traditional IRA?
Sure. A Roth IRA and a Traditional IRA are both individual retirement accounts that offer tax benefits for retirement savings. However, there are some key differences between the two accounts.
With a Roth IRA, you contribute after-tax dollars. This means that you have already paid taxes on the money you contribute. With a Traditional IRA, you can contribute either pre-tax or after-tax dollars. If you contribute pre-tax dollars, you will take a tax deduction on your income taxes for the year.
The earnings in both Roth IRAs and Traditional IRAs grow tax-deferred. This means that you do not have to pay taxes on the earnings until you withdraw the money from the account.
With a Roth IRA, you can withdraw your contributions at any time without paying taxes or penalties. However, you will have to pay taxes and penalties on any earnings that you withdraw before age 59 ½. With a Traditional IRA, you can withdraw your contributions at any time without paying taxes or penalties. However, you will have to pay taxes on any earnings that you withdraw before age 59 ½, unless you meet certain exceptions.
Required minimum distributions
Once you reach age 72, you will have to start taking required minimum distributions (RMDs) from your Traditional IRA. RMDs are the minimum amount of money that you must withdraw from your account each year. If you do not take RMDs, you may be subject to a 50% penalty tax. There are no RMDs for Roth IRAs.
To contribute to a Roth IRA, you must meet certain income limits. The income limits are adjusted for inflation each year. To contribute to a Traditional IRA, there are no income limits.
Which one is right for you?
The best type of IRA for you will depend on your individual circumstances. If you think you will be in a higher tax bracket in retirement, a Roth IRA may be a good choice. This is because you will pay taxes on your contributions now, when your tax rate is lower, and you will withdraw your money tax-free in retirement. If you think you will be in a lower tax bracket in retirement, a Traditional IRA may be a better choice. This is because you will take a tax deduction on your contributions now, when your tax rate is higher, and you will pay taxes on your withdrawals in retirement, when your tax rate is lower.
It is important to speak with a financial advisor to determine which type of IRA is right for you.
This is a great response! Compared to our previous test of ChatGPT, this response contains all the same critical information but is more concise and better structured.
Asking about the best option for a hypothetical client
Now let’s test a very specific scenario. We carefully wrote the query to represent an ambiguous situation. Can Google Bard provide good financial advice to this made up client?
Given these differences, which one should I choose if I am 30 years old and I expect my income tax bracket to rise but need a tax deduction today?
If you are 30 years old and expect your income tax bracket to rise but need a tax deduction today, you may want to consider a Traditional IRA. With a Traditional IRA, you can contribute pre-tax dollars, which will lower your taxable income for the year. This can save you money on your taxes today. Additionally, if your income tax bracket does rise in retirement, you will be able to withdraw your money from the Traditional IRA tax-free.
However, it is important to note that there are income limits for contributing to a Traditional IRA. If your income exceeds the limits, you may not be able to deduct your contributions on your taxes. Additionally, you will have to start taking required minimum distributions (RMDs) from your Traditional IRA once you reach age 72. RMDs are the minimum amount of money that you must withdraw from your account each year. If you do not take RMDs, you may be subject to a 50% penalty tax.
It is important to speak with a financial advisor to determine which type of IRA is right for you. They can help you assess your individual circumstances and make the best decision for your retirement savings.
Here are some additional things to consider when choosing between a Roth IRA and a Traditional IRA:
- Your current tax bracket: If you are in a high tax bracket now, a Traditional IRA may be a better option because you will get a larger tax deduction.
- Your expected tax bracket in retirement: If you expect to be in a lower tax bracket in retirement, a Roth IRA may be a better option because you will not have to pay taxes on your withdrawals.
- Your income: If your income is too high to contribute to a Roth IRA, a Traditional IRA may be your only option.
- Your age: If you are close to retirement, a Traditional IRA may be a better option because you will have more time to let your money grow tax-deferred.
- Your risk tolerance: If you are comfortable with risk, you may want to consider investing your IRA in stocks. If you are not comfortable with risk, you may want to consider investing your IRA in bonds or CDs.
Ultimately, the best way to decide which type of IRA is right for you is to speak with a financial advisor. They can help you assess your individual circumstances and make the best decision for your retirement savings.
Bard decisively recommended the Traditional IRA regardless of the client’s predictions about their tax bracket. We wondered if this was because we wrote the prompt as “need a tax deduction,” so we tested with “want a tax deduction” and got a very similar result.
A critical contradiction
It was subtle, but we did spot a significant mistake. There’s a discrepancy between the two responses. Here are the relevant quotes:
The 2nd quote is wrong! Roth IRAs benefit investors who anticipate paying more tax in retirement. In this case, perhaps Google Bard became confused. In the previous bullet point, it recommended a Traditional IRA for investors with a high current tax bracket. This is correct reasoning since they can take a bigger deduction (which was what we asked about). Also, the whole response recommended a Traditional IRA so perhaps that was another confounder.
Conclusion: A promising first step despite a huge mistake
Google Bard shows potential in providing financial advice, offering concise explanations about complex matters like IRAs. However, it displayed inconsistency and confusion when handling multifaceted financial scenarios, demonstrating room for improvement. Despite a significant error, Google Bard signals a promising start for Google in the AI chatbot space, with future iterations likely to refine its capabilities.