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Subject:  Re: Ideal Age to Retire Date:  6/18/2019  3:38 PM
Author:  intercst Number:  94028 of 100881

AlphaWolf writes,

Say you're 20, working, and can afford to have your pay check go down by $100 for retirement investing. Let's ignore any potential match in your employer's 401(k) (which only strengthens the IRA advantage) and assume a 20% tax rate.

With the Roth, you invest $100 after-tax dollars per pay check.

With the IRA, you invest $120 per pay check, but your pay still only goes down by $100.

So you invest and (hopefully) grow 20% more over 45 or 50 years. Plus there's the time value of money (would you rather pay Uncle Sam today or pay him 45 years from now?).

I think the tax rate difference is only one of several material differences.


It's just an arithmetic problem. If your tax rate remains the same, it doesn't matter if you take out the taxes at the start of the series by investing in a Roth, or at the end of the series by doing a traditional IRA. Your after-tax total is going to be the same. So the answer to the question, "Would you rather pay Uncle Sam today or pay him 45 years from now?" is, "It doesn't matter."

Those of you who remember your 3rd grade arithmetic will recognize this as the "Commutative law of multiplication."

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