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Hi all!

I am currently contributing 14% of my salary to my 401(k) plan; my employer matches 4%. We are not contributing to any IRAs at the moment. From what I can tell, we qualify for contributing to Roth IRAs but not for traditional IRAs.

My wife and I have recently received or read several recommendations that we reduce our 401(k) contribution and fund Roth IRAs.

From a wealth accumulation point of view, is this Wise? Or Foolish?

I decided to do a very simple analysis in Excel, and from what I did it came up an absolute wash. Since most Roth vs. traditional IRA calculators on the WWW have indicated to me that a Roth is the better choice, and since traditional IRAs and 401(k)s act similarly with respect to tax treatment in my case (I'm 29 and all of this money is for retirement), and since everyone is saying do the Roth, I was surprised at my analysis.

Here's what I did:

I started off with a one-time $2000 contribution this year. I assumed I'd pay 28% tax on the money going into the Roth, so I subtracted that off the top and invested the balance ($1,440, I think) into the Roth in column A. In column B I stuck the whole $2000 into my 401(k). I assumed a 10.5% annual rate of return for both (I would put both in an S&P 500 index fund; I would not at this point put the Roth into the Foolish 4). I then compounded for 36 years until age 65. I then took the balance in the 401(k) and subtracted off the 28% tax there. The resulting amount was precisely identical to what was in the Roth. (After I thought about this for a while, it made sense.)

What am I missing between my analysis and everyone else's?

I do understand that if my tax bracket increases in retirement that the Roth is a better deal. I am not convinced it will in my case.

I also understand that I have more investment choices with a Roth. Fortunately, I like my choices in my 401(k).

I also understand there are different features to Roths versus 401(k) having to do with distributions and estate stuff, and house withdrawals, etc. These are a secondary concern to me now.

Finally, I suspect that everyone's suggestion that I fund a Roth is simply a way to get me to open an account with them and then eventually get a shot at servicing my brokerage account, checking, and savings, thus gaining whatever revenues there might be there. Kind of like my local bank screaming at me to get a home equity line of credit and pay of those nasty credit cards...

Any help understanding this would be appreciated.
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