No. of Recommendations: 0
<<Ramtough wrote>>
I'm looking for the answer to a question that has probably been asked a million times. I would like know which vehicle is the better option for someone with about 10 years before retirement. I have an existing Traditional but I want to know if I should continue to invest in it or start a new Roth.

Are there any sites on the web that address this exact question. I would be interested in a site that is interactive.

<<Pixy replied in part>>
Which would be better is largely contingent on your tax status today versus that ten years from now. If your marginal tax rate stays the same and rates of return are the same in both IRA, then it's a wash. If your tax rate will be lower ten years from now, the traditional IRA is better. It the tax rate is higher, then the Roth is better.

<<my comment>>
Pixy, I'm with you on your first sentence but not the second one -- at least, if you take advantage of the effectively larger size of the Roth IRA by making the full contribution. If your tax rate stays the same, and you maximize your contributions to the Roth IRA, you'll come out ahead (and by a significant margin when the time frame is 10 years). Throw in a couple of other goodies like the ability to make early withdrawals of contributions without penalty or tax, and the ability to leave money in after age 70-1/2, and the Roth IRA looks even better.

Here's my rule of thumb (not original with me, but one I have adopted because I believe it works): choose the deductible IRA over the Roth IRA if your deduction will be at 28% or higher and your withdrawals will come when you are in the 15% bracket. It's hard to project that the benefits of the Roth IRA will overcome a 13% rate differential. Otherwise choose the Roth IRA (even if your rate will shift from 31% to 28%). I emphasize that this is only a rule of thumb and there are many more considerations laid out at length on my web site. But you're missing an important factor if you suggest that the two forms of IRA are a wash for someone whose tax rate remains the same.

KAT in Chicagoland
Tax Guide for Investors
Now with expanded and revised
Roth IRA information
Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
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.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! 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.