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<< . . . This result will be true for any contribution at any time to a Roth where the associated tax rate is higher than the post-retirement tax rate for the regular IRA. This is also true for any roll-over from a regular IRA to a Roth IRA. . . . >>

Your analysis overlooks other benefits of the Roth IRA which may significantly enhance the overall investment return and overcome any disadvantage that occurs if the post-retirement tax rate is lower than the rate at the time of contribution or rollover. While there are many factors to consider, the following is valid as a general rule of thumb: if your post-retirement tax rate is 15% (or zero) and your tax rate at the time of contribution is 28% or higher, do not use the Roth IRA. If your tax rate after retirement is 28% (or difficult to predict because retirement is many years off), the Roth IRA is likely to be a winner overall, even if your tax rate at the time of the contribution or rollover is higher because the other benefits of the Roth IRA will outweigh the disadvantageous rate shift. Again, this is a rule of thumb and further analysis should be applied to see if it holds true in individual circumstances, especially where a large rollover is involved.

KAT in Chicagoland
Tax Guide for Investors
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