No. of Recommendations: 0
To Roth or not.

I personally believe the Roth is a scam by the Federal Government to get people to pay taxes up front instead of later (as with a tax-defered IRA). It's exactly what you would expect a cash-strapped government to do.

Consider $1,000 invested in one or the other. (I intentional chose less than the maximum.)

In a tax defered IRA, $1,000 would grow over 10 years at 12% to $3,106. If you paid 28% in tax when you took it out, you would pay $870 in tax and you would be left with $2,236.

In a Roth IRA, you would pay 28% of the $1,000 up front leaving you with $720 to grow over 10 years at 12% to $2,236.

No slight-of-hand here! Oh, sure there are SUBTLE differences between a Roth and traditional IRA. For instance, the maximum contributions are slightly different. The ACTUAL maximum contribution of a Roth is a little higher because you can contribute $2,000 after tax, rather than $2,000 tax-defered. In other words the full $2,000 that you contribute to a Roth is yours, while a portion (15% or 28%)of the $2,000 that you contribute to a tax-defered IRA goes to Uncle Sam.

Also, to guess whether you'll be in a higher or lower tax braket 20 or 30 years from now is futile. (I understand the original post was for someone quite close to retirement)

There are also slight differences in when you must make withdrawals.

Don't be fooled. There really isn't that much difference.

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