Kettle Moraine, WI | pigfarmer82 - 1/20/2024 11:49
. Is the government smarter then most give them credit telling young people a roth is more valuable to them or is 20 years about the break in working for you.
IRA investment allowed are the same dollars for Roth and traditional (if under the Roth income caps) But Roth allows a higher real investment. Roth being being pretax allows you to invest more post tax dollars into the IRa vehicle. Essentially, you pay 7000 for 5600 investment tax free at retirement via a Traditional IRA provided tax rate is 20% at time of both events versus you pay 7000 into a Roth and 1400 taxes on that Roth amount to get a 7000 investment tax free at retirement presuming 20% tax rate and no changes to tax free Roth status over time. In this scenario, a 7000 traditional IRA investment is worth about a ~5800 ish Roth investment.
It comes down to current tax rate being same or different than the tax rates and rules at time of withdrawal. So a traditional offers saving if in 37% bracket if retire in the 15% bracket, but less wise if at a 10% income and retirement will be at 20-30% (Yes a Roth is unavailable to 37% bracket earners)
Traditional- invest 7k deduct 7k from taxable income = 7k invested and withdrawal time pay the tax (let's say 20% tax paid then so 80% withdrawal after tax so let's say the investment results of $5600 invested the life of the investment)
Roth- invest 7k deduct 0k from taxable income =7k invested and pay taxes on the 7k here and now(let's say 20% so $8400 to invest $7000 into a Roth as example). Upon current rules, the investment results of 7k are fully available tax free at retirement withdrawal
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Traditional vs Roth IRA
