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Author: djpeteski Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Re: IRA vs. Roth IRA Tax Savings Date: 12/20/2007 10:23 AM
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Lets assume you are 30, contribute 4K a year, and retire at 65. Lets also assume your effective tax rate today is 20%, and when you retire it drops to 15%, and you can earn 11% on the money.

With the IRA you will end up with 796,084 and the ROTH 636,867 (because you only put in 3.2K per year due to taxes.)

Now let us assume that you will withdraw every cent of the money. With the IRA, you will end up with 676,671.

The ROTH you will still have the 636,867.

In this simulation you are better with the IRA. The higher your current tax rate, the better you are off with the IRA. 20% may be too low, because that money is taxed at the highest rate rather than the average rate. If you bumb the rate up to 25%, the ROTH comes out at 597,063.

I guess you have to do that kind of math to figure it out. Heck it surprised me.

In order for the choices to be equal, you have to have a retirement tax rate of 20% and 25% respectively.

Wow, thanks for asking that question.
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