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Dave writes:

<<So, let me see if I have my math right...assuming 10% return over 40 years for $2K, the tax free gain should be $88,519 which is equivalent to $22,357 in today's money adjusted for 3.5% inflation. With 20% capital gains tax savings (40% short term - 20% long term), I would need a gain of $111,785 today to break even?>>

I'm not sure where you're coming from in the second sentence, but the math is correct for the first. Those results tell you that if inflation is 3.5% annually over the next 40 years, then the future tax-free gain of $88,519 is worth $22,357 in today's dollars. If you wait until next year to take your capital gains, you will be ineligible to make a contribution to your Roth, which you want to do. (BTW, you could still use a nondeductible traditional IRA.) The question then is how much in taxes you will save by waiting until next year to take that long term capital gain. If your tax savings is greater than $22,357, then (in terms of today's dollars) you're better off waiting and foregoing usage of the Roth. If you don't save more than that amount in taxes today, you're better off using the Roth.

You should look beyond the simple math here by cranking in alternatives for that $2K deposit. Look at the future accumulation of a nondeductible traditional IRA after taxes 40 years from now. Do the same with a taxable long-term buy and hold account. Subtract those two balances from the future value of the Roth and bring those sums back to present value terms. Those differences will cause the $22K amount in the above example to fall markedly, and will make the long term gain more attractive. The whole idea is to see how much that tax savings is worth to you, and that's just one way of approaching the problem.

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