4 ms·
That doesn't matter. Roth vs. Traditional is purely a bet on current vs. future tax rates. P = principal, T_0 = current tax rate, T_t = Tax rate
by jowiar 10y ago
That doesn't matter. Roth vs. Traditional is purely a bet on current vs. future tax rates.
P = principal,
T_0 = current tax rate,
T_t = Tax rate at retirement (t years in the future).
r = rate of return between time 0 and t
Roth IRA: (P * (1-T_0)) * (1+r)^t
Traditional IRA: (P * (1+r)^t) * (1-T_t)
Which are identical save for the tax rates.
- khuey 10y agoIt's not quite that simple. There is other relevant weirdness in the tax code. Roths are not subject to required minimum distributions and don't count as income during retirement. That can be very useful because a lot of provisions of the tax code phase out as your income rises. Of course, Congress could also fix that oversight by the time you make it to retirement ...