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Roy Lewis, in "The New Roth IRA-part lll, Scenario 2" arrives at the incorrect recommendation of going with the Roth IRA on the basis of paying less tax, "all other things being equal". The objective of investing is the maximizing of gains, not the minimizing of taxes. After paying 28% tax on her annual $2000 set-aside for an IRA, she will have only 72% left for the actual investment: this will yield her 72% of $361,886 at the end of 30 yrs. or $260,558. Meanwhile, in Scenario 1, after paying post-retirement taxes of 15%, there is 85% of $361,886 or $307,603 left. Thus, Scenario ll has cost her $47,045 of her nest-egg. This is exactly the difference in the two tax rates times $361,886. 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. That is why the proponents of the Roth are careful to say that some other money should be used to pay the taxes due on money coming out of the regular IRA: if any tax payment is attached to the roll-over in excess of the post-retirement rate the Roth case collapses. But what is such other money? It's not any salary, interest, or dividend income, perhaps the money under the mattress or in the tomato can in the yard.
So, why does the Roth exist? I believe that it is an effort to accelerate cash flow into the Treasury to off-set the late-and low- payments associated with the regular IRA. As such, it is serving the Treasury, not the individual investor.
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