UnThreaded | Threaded | Whole Thread (12) | Ignore Thread Prev | Next
Author: fling Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76420  
Subject: Re: IRA allocation questions Date: 11/19/2001 3:38 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
>>Joe contributes $2000 of take-home pay to the IRA each year. Mary writes the IRA company a check for $2000, but come next April she gets back $600 of that from the government (due to the tax deduction). So her out-of-pocket cost is only $1400.

At retirement, Joe's IRA has $2,000,000 worth and Mary's has $2,000,000. But Mary has to pay taxes on that when she withdraws (not all at once, we hope) so the traditional IRA isn't worth as much as the Roth.<<

So the question is whether the $600 a year that Mary has extra to invest in a taxable account (where, in addition to the capital gains upon selling, also has taxable dividends and capital gains distributions) makes up for the differences in the IRA balances after taxes. That probably depends on a lot of things, including tax brackets, what investment is chosen, and how long till retirement. I'm not sure how to model this in a spreadsheet.

Note that if Joe's income is too high to deduct a traditional IRA contribution but low enough to still make a Roth contribution, it's a no-brainer for the Roth.
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (12) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
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.
Post of the Day:
Macro Economics

Looking at Currency Ratios
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
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 "#1 Media Company to Work For" (BusinessInsider 2011)! 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