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URL:  http://boards.fool.com/yes-but-why-not-into-a-traditional-ira-and-23734033.aspx

Subject:  Re: Earned Income for Roth Date:  2/20/2006  11:52 PM
Author:  Mark12547 Number:  50063 of 75805

Yes, but why not into a Traditional IRA and deduct 100% from income tax?

I can think of several reasons why the OP might decide on a Roth IRA:


1. Mathematically, it doesn't matter if one pays taxes now for a Roth or later for a deductible contribution to a Traditional IRA (assuming one qualifies for deducting contributions--it depends on income, among other things), as long as the tax rate is the same. So if it is just a matter of taxes and if the tax rates are the same, there is no advantage either way.

2. However, if one is expecting tax rates to go up because of the uncontrolled spending in Washington DC, the Roth IRA actually comes out better.

3. The Roth IRA doesn't have any Minimum Required Distributions (MRDs) when one turns 70.5 years old, but a Traditional IRA does.

4. If one wants to have beneficiaries for the Roth IRA, if I recall correctly, they don't have to pay income tax on money they take out of an inherited Roth IRA, but they would for money taken out of a Traditional IRA.

5. If one doesn't have a Traditional IRA, but one already has a Roth IRA, there may be economies of scale of keeping the funds in a Roth IRA, such as avoiding small balance fees or getting a share class available to larger investments that have a lower expense ratio and thus a slightly higher rate of return. (E.g., it was just a couple weeks ago I had placed enough in one of the funds in my Roth IRA to avoid all Roth custodial fees; if I had decided to put it in a Traditional IRA in the same fund, I would have a custodial fee for that fund in the Roth and another custodial fee for that fund in a Traditional. I'm jut bringing this up as an example where a few larger holdings in the same type of account could work out better than splitting it across different account types.)

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