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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75383  
Subject: Re: IRA vs. Roth IRA Tax Savings Date: 12/19/2007 9:31 PM
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Has anyone done a mathematical comparison of the difference between taxation upon withdrawal (traditional IRA) and taxation before contribution (Roth IRA)?

Lots of folks have.

Basically, this is an arbitrage decision. Is your tax rate when the IRA money is withdrawn going to be more or less than your current tax rate? If the current rate is higher, defer the taxation and go with the traditional. If the future tax rate is higher, pay the taxes now and go with the Roth.

This assumes that any tax savings related to a traditional IRA are also saved and invested. If that doesn't happen, you get a significant bias toward the Roth.

The big problem is that proper application of this formula requires knowledge of the future. My staff swami just quit, so I can't help with predicting the future. The best we can do is make educated guesses. And your educated guess may be different from my educated guess.

--Peter
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