Jack has spoken passionately about the issue of Traditional vs. Roth IRAs and expressed a strong preference for Roth IRAs. I've done some number crunching and my take-away is that a Traditional IRA is not only a good investment, but for the vast majority, a better investment. To wit:

Take an annual income of $50,000 with an annual IRA contribution of 5% ($2,500). The marginal tax rate for income up to $34k is 15% and up to $82k is 25%. The base tax on $50k is $4,681 and the marginal tax is $4,000 for a total estimated tax of $8681.

Roth - A $2500 annual contribution compounded (@3%) over 30 years is $128,575. All this time you have been paying $625 annually in taxes on the $2,500 or $18,750 over 30 years.

Traditional IRA – That same $2,500 contribution combined with the deferred taxes ($625) means an annual contribution of $3,125. Compounded (@3%) over 30 years is $159,202.

The difference is Traditional IRA + $30,627.

So the central question is: “what tax rate would one need to be in to negate the $30k gain in income realized from a Traditional IRA?”

Further, let’s assume a standard deduction for an individual is $9,350 ($3,650 personal exemption + $5,700 standard deduction). At a 4% withdrawal rate you can have an IRA balance of $233,750 and remain in the zero tax bracket. You can have a balance of almost $862,500 and still be in the 10% bracket. Or $2,072,500 and still be in the 15% bracket.

Going back to our example, we know that $159,202 paid at the deferred tax rate of 10% = $15,920, @15% = $23,880, or @20% = $31,840.

So, it turns out that in order to offset the benefit of deferred tax contribution and compounding interest one would need to have accounts valued at over $2 million dollars.

What am I missing that would cause me to choose a Roth? I don't foresee having in excess of $2 million dollars. I don't foresee the 10% or 15% tax brackets being adjusted so dramatically that it will make a difference. Tax rates for the bottom bracket have only exceeded 19% in 1945 (23%), 1951 (20.4%), & 1953 (22%).

I'm no financial wiz and have no skin in the outcome of a Roth v. Trad IRA debate. I simply did some calculating and got a different answer than I expected. So unless I see Harry Truman walking through the door I wont be converting to a Roth.

Would love to hear thoughts on this.

(yup, first post)