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Subject:  Re: Roth IRA's (cont.) Date:  1/29/1998  7:02 PM
Author:  TMFPixy Number:  1532 of 88511


Glad to see you found the right folder. :-)

<<I am an employee with a firm that, between the firm and myself, the contribution can be 15% of my salary (my contribution can be up to 8% of the 15% total). My tax bracket at this time is ,I think 15%, and I would for see my tax bracket at retirment at 28%. Please keep in mind that I'm not to familiar w/ the tax brackets and their impact on me later. As my salary increases, of course my contriution could increase. There are also plans ,keep your fingers crossed, of a possilbe associate position or partnership.

I also understand that my wife can contribute $2k to a Roth I can contribute $2k to a Roth and I can transfer my office SEP-IRA into a Roth. At this point the total amount could be say for numbers sake $8k to a Roth per year. Now I realize that I will have to pay taxes on my SEP-IRA When I transfer It and will not be able to take any Tax-deductions, but isn't this better than the alternative. The alter. being to put $2K in a Roth for my wife and myself (totaling $4k) and maxing out my SEP at work, but leaving it as a traditional IRA ,taking the deduction and saving taxes now, but paying large sums of taxes on the capital gains later. >>

Much depends on how long the money stays within the Roth, how the payment of taxes is handled, and current versus future tax rates. In general, if you can pay the taxes due without touching the rollover money, then (assuming the same tax bracket now and in retirement) the Roth gets the edge when using the same rate of return on all investment options. If your tax bracket falls from 28% to 15%, you're better off in the SEP. If it falls from 31% to 28%, the Roth also tends to win. I'm running a number of scenarios on conversions now which I'll post here in time, like in a week or so. So far, that's what the data shows assuming the opportunity cost for paying taxes from another source is thrown into the mix by adding that to the after-tax results of the deductible investment like a SEP.

In your case, not only do you have to look at those issues, but you have to compare possible rates of return in the SEP options against those in the Roth. It's not an easy question to answer, and the short one is, "You have to run the numbers for yourself."

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