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Subject:  Re: Diversification Date:  2/20/2004  2:59 PM
Author:  2old4bs Number:  39316 of 88065

I believe that you are making your life more complicated then need be based on predications that are too difficult to make accurately.

Regards, JAFO

I agree with JAFO--tax rates change almost as often as presidents. Right now taxable accounts seem more desirable to some folks because of the lower cap gains taxes--but that's only good for another 4 years (if that), a relatively short time in the realms of investing. Thirty years ago the max cap gains rate was, if I'm not mistaken, 36%! So, if your retirement time horizon is 30 years away, it's anyone's guess what will have happened to incremental ordinary income tax rates, cap gains rates, ROTH rules, TIRA rules, etc. They might in the future decide that if an individual's income in retirement is above a certain level, that individual should pay tax on their Roth withdrawals--who knows?

Another thing to consider is the complexity of what you're undertaking. The example you used is probably the simplest of comparisons (Roth and TIRA), but what happens when you start dealing with taxable accounts, in which you're only taxed on the gains, not your basis, and at what rate would you estimate the cap-gains tax, short or long-term? What about the Alternative Minimum Tax? What happens if you become non-eligible for a Roth, but decide to make non-deductibe contributions to a TIRA--you'd have to track the gains separately so that you could apply your estimated tax rate to the gain portion only and not the basis. In addition, as another poster pointed out, if you're now counting on an 'after-tax' basis, you have to consider the extra cost of the ROTH contributions in your calculations, or conversely the lesser cost of the TIRA contributions, which also means you'd have to track contributions and gains separately because the after-tax cost of each is different in the TIRA account.

For someone with 5 different types of accounts that will each be taxed differently in retirement, trying to allocate on an 'after-tax' basis would be a nightmare. You might be in this position 20 years from now. Why complicate your life unnecessarily?


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