UnThreaded | Threaded | Whole Thread (15) | Ignore Thread Prev | Next
Author: jvanscoy Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75523  
Subject: Re: Roth IRA vs. 401(k) Date: 9/24/1997 2:17 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Henry, did you run the numbers with equal out of pocket costs? If you just consider $2,000 to a Roth or deductible or non-deductible, the Roth will win. The goal is to get $2,000 into an IRA. The cost of doing that is different for the various types of IRAs. The true cost of the Roth is $2,000 to the IRA and $778 to the IRS. The true cost of the tax deductible IRA is $2,000 to the IRA and $778 to a taxable investment to make the out of pocket costs the same.

There is a case to be made for assuming a lower tax rate in retirement, even if you have the same income. When you are working and investing in the IRA, you are working with the marginal dollar and the marginal tax rate should be used. However, when you are retired, you will have income from several sources, the IRA being one source. Any of your sources of income could be considered the marginal dollar or any of the sources could be considered the first dollar. I think the average tax rate could be used for this time in life. Of course, if you cashed out the IRA or made a large withdrawal for a purchase, you would want to use the marginal tax rate.

Regards, Jim
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (15) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Post of the Day:
Macro Economics

U.S. Stable, Europe Stalling
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 "#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