|Table 1. To Convert or Not? Keeping Assets in a Traditional Deductible IRA vs. a Roth IRA|
|Current Age||Amount Transferred to New Roth IRA||Federal/State Inc Taxes Due||Pre-Tax Value at Retirement||Total After-Tax
|Net Gain for Roth IRA in Total After-Tax Withdrawals|
|Deductible IRA||Roth IRA||Deductible IRA||Roth IRA|
|Tax Savings Account**||27,534||N/A||48,644||N/A|
|Tax Savings Account**||28,135||N/A||50,277||N/A|
|*The table assumes in each case that the investor's adjusted gross income is less than $100,000, there are no additional IRA contributions, an 8% annual rate of return
before retirement at age 65 and a 6% annual return after retirement, an ordinary federal income tax rate of 25% before and after retirement and a state
tax rate of 5% for a combined effective rate of 28.75%. Net income and long-term gains in the taxable account are taxed at a federal tax rate of 15% and
a state tax rate of 5% for a combined effective rate of 19.25%. All withdrawals from the Roth IRA are free of federal and state taxation; all withdrawals
from the Deductible IRA are subject to federal and state taxation. Withdrawals are made over a 30-year period and minimum required distributions are
The table also assumes all contributions to the Traditional Deductible IRA were deductible and therefore the entire conversion amount is subject to tax. Also assumes no taxes are paid from the Traditional IRA, so the full amount in the IRA is converted to the Roth.
**The “tax savings” account assumes that the taxes that would have been paid in the IRA conversion are instead invested in a separate taxable account growing at the same rates noted above. For the Traditional deductible IRA, these “tax savings” are $7,188 for the 45-year-old and $14,375 for the 55-year-old. The value of this separate account is added to the current Traditional Deductible IRA to make a valid comparison with the Roth IRA since we assumed that no money was taken out of the Traditional IRA to pay taxes due as a result of converting to the Roth IRA.
Source: T. Rowe Price Associates, Inc.