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Author: LTPlayer One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75335  
Subject: Re: To Roth or not.. Date: 12/29/1999 9:22 AM
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tgiletto,

>>This may or may not be true, but when you compare a $2000 Roth to a $2000 taxable account (i.e. not eligible for a standard IRA) then it is a big win.

I really don't see the "big win"?

Please explain.


I posted this before, but I can't find the link to it, so I will post this information again:

If one compares a Roth to a taxable account, assuming they get the same rate of return, the Roth comes out ahead because there is no capital gains tax on its increase in value.

I set up a spreadsheet with the following assumptions:

Tax Bracket - 28%
Annual Rate of Return - 12%
Capital Gains Tax - 20%

Here is the spreadsheet. The % Difference column is how much more the Roth returns over the Regular account. As you determined, a traditional IRA returns the same as a Roth after taxes.

Year Roth Regular % Difference
Investment

1 2240 2192 2%
2 2509 2407 4%
3 2810 2648 6%
4 3147 2918 8%
5 3525 3220 9%
6 3948 3558 11%
7 4421 3937 12%
8 4952 4362 14%
9 5546 4837 15%
10 6212 5369 16%
11 6957 5966 17%
12 7792 6634 17%
13 8727 7382 18%
14 9774 8219 19%
15 10947 9158 20%
16 12261 10209 20%
17 13732 11386 21%
18 15380 12704 21%
19 17226 14180 21%
20 19293 15834 22%
21 21608 17686 22%
22 24201 19760 22%
23 27105 22084 23%
24 30357 24686 23%
25 34000 27600 23%
26 38080 30864 23%
27 42650 34520 24%
28 47768 38614 24%

Hope this helps.

LT
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