Greeings Fools,

I'm one of America's protectors of freedom and enjoy th e benefits of unusually low pay compared to my counterparts in the civilian world.

As a result, I am in the 15% tax bracket. I have a non-working wife and 2 small children. I'm trying to figure out what makes more sense for my situation: I would like to fully fund an IRA this year. Should I put my money in a Roth since I'm in such a low tax bracket, or should I fund a Traditional IRA since I could use the tax break now.

I don't know if it's important, but I have about 10k invested in the stock market and mutual funds, but had no capital gains or noticiable dividends last year.

Thanks for all you're help!

Howard

<< I am in the 15% tax bracket. I have a non-working wife and 2 small children. I'm trying to figure out what makes more sense for my situation: I would like to fully fund an IRA this year. Should I put my money in a Roth since I'm in such a low tax bracket, or should I fund a Traditional IRA since I could use the tax break now. >>

A $2,000 traditional IRA deduction will get you a $300 tax reduction. That's less than a dollar a day. (Don't know if you pay any state income taxes.) You could, of course, invest that $300 in a taxable account and earn something on it over the years, paying taxes on the income as you go. Your $2,000 would grow tax free until you start taking disbursements, at which time you'd owe tax on the full amount of your distributions.

Contrast that $300 current tax savings with the prospect of compounded earnings on that $2,000 for probably at least 25 years (you don't give your age), TAX FREE, and to me it's a no-brainer. Unless you desperately need that $300 now, do a Roth.

TMF ExRO
Phil Marti

As Phil points out, your deduction in the 15% bracket is only worth $300. Viewed another way, you are "locking in" a very low tax rate on your Roth contribution by being in this bracket now. IOW, who knows what taxes will look like 20-30 years from now? What's the likelihood that you'll be in a lower bracket than 15%? Not very good, right?
Pay the taxes now by contributing to a Roth & you've paid the only taxes you'll ever pay on that money. Put the same $2K into a Trad IRA & you're at the mercy of a Congress run by Generation Xers when you retire! Like Phil said, the Roth is a no-brainer.

Chris

PS- yeah, sure your pay is low, but at least you get to deploy to Saudi & live in a tent. <grin>