Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
Two things need to be remembered. We are just talking here about the 15% tax bracket. If you have invested in other ways, you will be at the 28% tax bracket quickly.

Assume a 10.5% ROR, $2000 dollar investment in each type of IRA, taxes paid yearly on the Roth IRA ($560 @ 28% bracket). Invest for 25 years and remove proceeds for 25 years. Tax brackets and percentages are the same as the current numbers.

To equate the two $2000 investments, you would need to add a $560 investment of taxable funds to the regular IRA. This equates to your tax burden of the other IRA. Invest this money according to today's tax laws- assume only long term capital gains and no dividends. Lets not make this too complicated. You are taxed at 20%.

In 25 years, your Roth IRA has $361,xxx and the regular IRA has $361,xxx and the extra taxable account has $101,3xx.

If you distribute the moneys as only income, your Roth IRA yields $40K and your combined gross regular income is $51K. After taxes, this $51K becomes $43K. You win the derby with the regular IRA by $3K per year.

If you have other incomes- 401(k), investments, etc... You would consider your moneys at the 28% tax bracket. That is because you are already getting your other monies that are not variables.

Your Roth IRA stays at $40,000 per year, and your before tax regular income is $51K. However, your after tax income becomes $38K. Now the Roth wins.

Personally, I'm in the second category and intend to use Roth to the hilt.

The tax difference expands when you hit the 33% tax bracket. Also, if you participate in an employee sponsored retirement plan, you can't even get tax benefits from the regular IRA at this time.
Print the post  

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.