Roth contributions vs pre-tax and invest tax deferment?

you're going to be paying a lot more taxes in retirement...

Yes, the person who uses the traditional pays an absolute dollar value in taxes that is greater than the person who uses Roth ... because they're paying the taxes later, on the amount that has experienced years of growth. But that is not relevant to the decision.

If you think it is correct to compare the $10,000 in taxes you pay for traditional IRA distributions in the future to paying $1000 taxes now to use Roth -- and you think "Gee! The former is $9000 more than the latter, I better avoid using the traditional IRA!" -- then you aren't understanding my point.

The correct way to compare them is to see they're both 25% tax rates (on $40K in future and $4K now, respectively), so they represent a wash situation that favors neither Roth nor traditional IRA.

In some cases, it may be realistic to predict that tax rates for someone will indeed be lower in retirement than now, based on lower income. So there can be arguments favoring traditional over Roth.

As a thought experiment, suppose your tax bracket is 25% now and you're debating whether to pay $1000 tax to put $3000 into a Roth IRA or simply put $4000 into a traditional IRA; and you expect your tax bracket affecting your distribution will be 15% during retirement. Suppose the $3000 grows to $30000 and the $4000 grows to $40000. Would you recommend doing the Roth now because $1000 now is less than the $6000 in taxes that someone who uses a traditional instead would pay later (15% * 4000)?

/r/personalfinance Thread Parent