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URL:  http://boards.fool.com/great-response-agg97-i-agree-with-the-roth-over-20821459.aspx

Subject:  Re: Confused Newbie Date:  5/26/2004  6:17 PM
Author:  Watty56 Number:  41099 of 75340

Great response Agg97,

I agree with the Roth over traditional IRA in for 99% of the situations but there are a few assumptions that are built into this.

1) Everything goes as planned and you make gobs of money up until you retire. I can't count the number of people I know that have had some sort of major career or health upset that they weren't expecting. Even if nothing bad happens, your priorities may change and your careers may take a backseat to your quality of life.

2) You will want to work until a typical retirement age of sixty something. You may end of having the choice of retiring ten or fifteen(or even twenty!) years earlier and living a more modest lifestyle, if you do this then you may actually end up being in a lower tax bracket when you retire. For example if you decide to retire in your early fifties, with your house paid off, then how much income do your really need to live a modest lifestyle. I am guessing that you and your spouse are probably in your twenties or early thirties, if so then with the income you are expecting, a very early retirement is possible.

3) I agree that money in a Roth IRA is much better than then same amount in a traditional IRA but if I read you post correctly you can't currently afford to max out the IRA's. So the choice is more like either $3000 in a Roth or approximately $4000 in a traditional IRAs to be the same after taxes in this tax year. The additional money in the traditional IRA tends to lessen the advantage of the Roth IRA.

4)It assumes that you will retire in a state with similar income taxes to the state you are currently working in. As I recall reading, New York has extremely income high tax rate that you would be paying for any money contributed to a Roth IRA. If you worked in New Your then ended up retiring in a state like Washington or Texas that does not have a state income tax, then you will end up having lost a lot of the Roth advantage.

Like I said, I agree the Roth is probably the way to go. With all of the possible changes that are possible in the future this is probably all guesswork anyway. The important thing is that you invest the money somewhere.

Greg


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