The Motley Fool Discussion Boards
Investing/Strategies / Retirement Investing
|Subject: Re: Starting late||Date: 7/31/2005 9:43 AM|
|Author: TwoCybers||Number: 47089 of 77275|
I stuck some numbers to your question and it is a break even unless your tax rates change. (i.e. Congress changes your tax rates or you move to a state with different income tax rates). But I am 100% convinced tax rates will go up.
Key to all this calculations are these items:
#1 Your current average tax rate (I choose 12.3% -- see http://www.smartmoney.com/tax/filing/index.cfm?story=taxbracket for a calculator. I figured your taxable income at $27K)
#2 How long until you retire -- I figured 20 years.
#3 How much return you will gain in say an index fund. For these calculations I said 10%
Results -- If you take $1,000 of pretax money and stick it in a 401K for 20 years at 10%, you will have $6,727 -- Taxes will reduce that to about $5,900 if you took it out all at once in 2025. Now if that same $1,000 of pretax income was taxed today, you would have $877 left to stick in a Roth IRA. Again earning 10% until 2025 you would have believe it or not $5,900 --
So the real question question is what do you think taxes will be like in 20 years. If you believe taxes will be lower for you in 20 years, the 401K is a better deal. If you think taxes for you will be higher in 20 years, the Roth is a better deal.
|Copyright 1996-2015 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|