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Subject:  Re: Honest IRA/Roth Comparisons Date:  3/28/1998  8:30 PM
Author:  tc001 Number:  2456 of 87991

Original post:
<<I'm mystified about the Roth hubbub, but maybe I'm just missing the boat.>>

Ray's reply:
<You _are_ missing the boat. Most people who can afford to contribute to an IRA cannot make deductible contributions. It's that simple. If you are covered by any kind of a retirement account by an employer, you can't deduct the money you put into your IRA.

The only people it applies to are those people for whom it doesn't matter, because they can't afford to take advantage of it.>

My turn:
Sorry Ray, but that answer is outright wrong. Even if you're in an employer's retirement plan, all or some of an IRA contribution may be deductible. It depends on your income level.

And most people *can* qualify for deductible IRA contributions (the stats on average family income for the U.S. solidly supports this).

And the people who qualify *can* afford to do it. It just takes some financial discipline. I doubt that you'd tell me that a family earning $40k (the *beginning* of the nondeductible phase-out range for 1997!) can't afford $2k for an IRA.

To go back to the original question, it's possible that the Roth does lose out to a regular IRA by your calculations. But I question your calculations to start with. To compare a contribution of $1440 to one of $2000 is really playing loose with the numbers.

On the tax strategy board, DrBear pointed out in a lengthy debate that the expectation of using that $560 tax savings for additional investment is not realistic. I'm not a Roth fan, but I do agree with him on that point. Much of the Roth dissadvantage in many of the calculations I've seen results from having the added growth of the tax savings. Be realistic and ask yourself how many people use the savings in that way. If they haven't done so before the Roth was created, why would they be expected to do so when making Roth comparisons?

The next big issue involves taxes. My problem with the Roth is that everyone assumes that the current tax structure will remain in place until death. This involves the continued use of the 15% and 28% brackets and the belief that no tax changes will occur that will affect the Roth tax-free premise. The first part is nonsense when you examine how frequently tax brackets are added or changed. The second part is nonsense when you realize that SS payments can now be taxable income even though they were designed to be tax-free.

The choice of Roth or no-Roth becomes very difficult to determine. You need to look at you *own* finacial situation, and then try to guess what the future will look like to see if your assumptions make you a winner. The Roth may very well provide many people with income benefits during retirement, or not! Everyone who chooses one way or the other believes that they are right, but no one choice is correct for all people and the one choice you make may not be right for you. But by the time you know for sure it will probably be too late to change.
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