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Author: moseykitty One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76237  
Subject: Re: Roth back to IRA? Date: 7/13/1999 2:53 PM
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---
"Why would you
want to be paying taxes on that money at a time in your life when you have high
earning power? When you retire, your income is lower and therefore your not at
that higher tax bracket, so it's much better to be in an IRA now for you because
of the lower taxes to be paid at retirement and the higher taxes to be paid on the
Roth contributions now!"
---

Because $2000 in a Roth IRA is _more money_ saved in a tax advantaged plan than $2000 in a traditional deductable IRA.

Longer version:

Your accountant is correct, but that's not the whole story.

It is important when comparing Roth IRAs to traditional IRAs to point out that they are mathematically identical. Paying tax on $1000, allowing what remains to grow for some years, and then withdrawing it tax-free is identical to saving $1000 tax free, allowing it to grow, and making taxable withdrawals. A simple equation, assuming a 33% tax margin and 10% annual gain for N years:

(DEPOSIT * 66%) * (1.1)^N = (DEPOSIT * (1.1)^N) * 66%

Superposition applies, and succeeding years can be treated independently. The differences are in the details:

- If tax rates go down in retirement (like your accountant said) the traditional is better.
- Since $2000 limit is after-tax money in Roth, more money can be sheltered in Roth than traditional.
- Minimum distribution requirements generally favor Roth.
- Etc.

It is because the differences are details and not fundamental aspects of the vehicle that people recommend doing an individual analysis before recommending what to do. For instance, if you choose the traditional over the Roth, what do you plan to do with the money that you would have spent on the income tax? Save it in an Index equity fund? Then a traditional sounds fine. Spend it? Roth would have been better.

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