• Briefly Noted
  • Retirement Planning
  • Which IRA Should You Contribute to and When?

    Roth IRAs offer better wealth incomes than traditional IRAs do on a dollar-for-dollar basis. Additionally, an investor who makes a lump-sum contribution at the start of a year fares better than an investor who makes a year-end lump contribution, though monthly systematic contributions do offer a compromise. These are the findings of a study about individual retirement accounts conducted by T. Rowe Price.

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    The study assumed an investor in the 25% tax bracket contributed $1,000 to a Roth IRA or a traditional IRA at various ages. A retirement age of 65 followed by 30 years of withdrawals was used. Returns were 7% annualized during the investor’s working years and 6% during his retirement years. The $250 tax deduction from the traditional IRA was put into a taxable account and taxed annually.

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    Discussion

    William Fusco from CT posted over 2 years ago:

    not so fast, if you add to the traditional IRA the tax savings or deduct from the Roth the cost of taxes you will end up with an entirely different conclusion. simply using "net to net" will demonstrate this conclusively.
    one must calculate the present value of "tax" over the period and consider that contribution as well. in either case the traditional IRA overwhelms the Roth by a considerable margin.
    furthermore just to add fuel to the fire another matter and pet peeve is the argument that one should defer collecting SS Benefits from 66 to 70, generally not a good idea either, regardless of your expectations for immortality. the accounting and actuarial tables don't support that misnomer either.
    wm f fusco
    203 779 8810


    Monk Jr. Monk from TX posted over 2 years ago:

    You are assuming that the government will keep Roth IRA alone? Good luck with that! Already, there was talk about capping amounts in IRA accounts and taxing whatever that is above a certain amount.


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