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Subject:  Re: Roth IRA Contriubtions & Conversions Date:  2/2/1998  5:01 AM
Author:  Kilmarnoch Number:  1571 of 88077

tc001 wrote:
<<My question (as usual, if you've seen any of my posts on the tax board) is why the after-tax regular IRA
is being calculated as though the entire tax is paid at the marginal rate? Contributions are made at the
marginal rate, but withdrawals aren't necessarily so.>>

actually nothing is done at the marginal rate... everything is done at the effective rate. But the effective rate varies based on the exact dollar amount you make, and it is alot harder to explain to people who think of themselves "in the 28% bracket".

I think everyone is using the marginal rate because it is easy to do. I also think the results are useless. ;P

As far as the rate at retirement matching the rate at contribution, I think anyone who is *planning* for their retirement is not going to take too much of a tax bracket reduction after retirement. Most people who care what happens to themselves after retirement have a large amount of money saved away outside an IRA. Have you thought about what is going to happen to the tax rates when SS becomes a problem? Are you expecting tax rates to go *down* long term???

-- Later

I hope to be well above the 15% tax bracket in retirement:

save 10,000 a year earning 10%:
- year 1: 11000 saved
- year 10: 175311 saved
- year 20: 630024 saved
- year 30: 1809434 saved
- year 40: 4868518 saved

at 10% I'm making $442592 a year... even with inflation at 5%, I think that will be in the middle tax bracket. But this is a dream right now... (not too) far from a reality. =)

Now imagine what that would be like with all of that amount inside a tax *free* Roth IRA?

Max out your 401K each year, and max out a Roth each year, periodically convert the 401K to a Roth and pay for the convertion with outside money. The result is you can put 12K a year into a tax *free* investment.
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