No. of Recommendations: 0
Thanks for the replies, but I'm still confused.

ExRO wrote:

*To clarify it for you, your stated aversion to having more than one account will cost you the tax you pay on the earnings attributable to your nondeductible contributions.*

This is what I really don't understand. How do the earnings on my future contributions become taxable. I've gone and done a few calculations, and this is what I've come up with. Please point out to me if I've made some mistakes. Here are the specifics:

1) I'm 26 years old, planning on retiring when I'm 59 1/2 (for the sake of argument)
2) I currently have ~$20,000 in an traditional IRA, which I don't plan on converting to a Roth (I may change my mind on this based on Crosenfield's suggestion that I can do partial conversions).
3) I will make additional contributions of $2000 per year until I retire (for a grand total of $70,000).
4) I will place all of this money into an S&P index fund, which I asssume will return 12% per year.
5) I will be in a 28% tax bracket when I retire.

The value of the account (whether traditional only or traditional + Roth) when I retire will be $1.8 mil. The tax I owe assuming I removed it all at once would be
1) Traditional only = value (1.8 mil) x basis (20000/70000) x tax rate (.28) = ~$144000

2) Traditional + Roth = value of traditional ($940K) x tax rate (.28) = `$264000

This looks to me like I wind up better off by keeping the traditional only with nondeductible contributions. Have I made a mistake here?

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.