Should you contribute to a Roth IRA or a traditional IRA? You may be surprised to learn that the Roth IRA beats the traditional IRA almost all the time. Let's look at seven common scenarios. In all these examples, we've assumed you would leave an initial contribution in the Roth or regular IRA for a number of years and then pull out the money as a lump sum in retirement after age 591/2. For simplicity's sake, we'll assume a 10 percent before-tax rate of return for each example.
Case study 1: 30 years to retirement; 28 percent tax rate in all years.
Compare a $4,000 nondeductible contribution to a Roth IRA to a $4,000 deductible IRA contribution. You'll pay no tax on the dollars pulled out of the Roth IRA, while withdrawals from the regular IRA are 100 percent taxable.
To make sure we're comparing apples to apples, we also invest the $1,120 of tax savings from the deductible IRA contribution ($4,000 times 28 perce...(register to read more)
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