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.
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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