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Author: gp703 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76398  
Subject: Re: Why a Roth IRA ? Date: 2/8/1999 7:54 PM
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<Check your math. Let's say you have $100 to invest.
That's probably $100 - $28 (28% bracket) in a Roth or $72 after tax "growing tax free". Compared with $100 - $0 growing at the same rate (assume the same investment vehicle). When you retire you withdraw what you need to live on. If that puts you in the 28% bracket, it's a wash. If it puts you in a lower tax bracket then the Roth is a sucker play.>

BF,

Lets check both of our calculations. For this illustration lets figure 25% tax and 10% growth. To make it easier, we won't add any money after the first year.

Year Roth Standard
-----------------------------
1 2000 2000
2 2100 2100
3 2310 2310
4 2541 2541
5 2795 2795
6 3074 3074
7 3381 3381
8 3719 3719
9 4090 4090
10 4499 4499

So we now have the same amount of money in each fund and since the IRA is not deductible (most of us don't qualify for that) each cost us $2500 up front. Now If I follow your arguement, you would rather pay 17% (best possible scenario) on the $2499 difference than get it tax free. So you will end up with $4074 after tax and I will have $4499. Multiply that by a longer period and more contributions and you have a SIGNIFICANT (sorry, can't figure out how to bold on this thing) difference.
Even if I have to withdraw what I need to live on, I would rather not pay tax on it than 17%.

GP

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