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Subject:  Re: Roth IRA Contriubtions & Conversions Date:  2/12/1998  4:46 PM
Author:  IngridB Number:  1748 of 88437

<< That doesn't mean the IRA is "earning less," though. It only means you have to take more from the
traditional IRA to match the same withdrawal you can take from a Roth. >>

Yes. I said it wrong. You are right about the amount needed to cover taxes also. I didn't think out my response enough.

<< IF you assume both earn the same return before and after you start taking withdrawals; IF you assume you will be in the same tax bracket before and after withdrawals; and IF you make the same tax-equivalent contributions to either IRA (i.e., $2K to the traditional and $1,440 to the Roth), then over the long run they are exactly equal and both will be depleted at the same time (ignoring niceties like possible death and mandatory required distributions from the traditional IRA starting at age 70 ½, a subject far too complicated to get into for this simple comparison). >>

Well, I don't think you need to make that many assumptions, but I do think you're right. I tried some examples starting with retirement (no more contributions, and $5000 income/year) from each. The results suprised me, and I'm still not convinced I didn't make a mistake since it's not intuitive to me. The results were that to get the same income you need 28% extra (or whatever the retirement tax bracket is) in the traditional IRA, regardless of growth after retirement or amount of income, or length of time you want the income to last. So, it seems that a lump sum distribution is _identical_ to long term income for Roth/traditional IRA contributions.

I finally decided that since you start with more in the Roth IRA (to be equivalent that is), you'll get more $ growth for the same % growth there -- obvious I guess, but I wasn't thinking about it right. So, that effect cancels out the fact that you take more of the principal (is that the right word for the contents of the IRA?) with every withdrawal. But it still doesn't seem like it should match exactly, no matter what the % growth rate. I'm confused! (But I know what I want to do with my money, so you don't have to try to enlighten me -- I may just be a little too dense for this one :)


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