Message Font: Serif | Sans-Serif
 
No. of Recommendations: 2
Braze is correct. Let's do some math.

1. Put $3000 per year in a 401(k) w/o match; earn 10% per year for 30 years. Terminal or future value will be @fv(3000,.1,20) or $171,825. Further let's assume that your tax bracket when you withdraw is 33% (combined federal & state; thus the after tax value would be $114,550.

2. Put 2000 (.67 * 3000) in a roth earning 10% for 20 years. @fv(2000,.1,20) = $114,550. There is no tax effect here because all withdrawals from the roth are tax free after age 59 1/2.

However, if your tax bracket drops in retirement from 33.3% to 26.5% then the after tax value of the 401(k) grows to $126,290; approx. $12,000 greater than the roth.

It all has to do with your tax bracket during contribution years being different than your tax bracket during withdrawal years.

TheBadger



Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement