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Author: JonathanRoth Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75812  
Subject: Re: Am I saving too much in retirement accounts? Date: 8/29/2014 5:03 PM
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The nice thing about IRA & 401K is the tax deferral. The bad thing is that you'll pay ordinary income tax rates on withdrawals. Plus the bit about not being able to easily take withdrawals until you are 59 1/2.

The only difference between the return of a Roth IRA and standard IRA return is due to any differences in the income tax rate when income taxes are paid.

Assuming the contributions, returns, and duration are the same regardless of the type of IRA. Here's the math:

Y = years held
C = contribution
T = tax rate so (1-T) = after tax retained value
R = Return rate so (1+R) = after return retained value

Standard IRA (pre-tax contribution): Value = (C * (1+R)^Y ) * (1-T)
Roth IRA (post-tax contribution): Value = (C * (1-T) ) * (1+R)^Y

Since multiplication is associative the equations are the same.

Jack
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