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Subject:
Retirement IRA Roth and Traditional
Category: Business and Money > Finance Asked by: ruth1234-ga List Price: $10.00 |
Posted:
20 Jul 2005 11:55 PDT
Expires: 27 Jul 2005 10:04 PDT Question ID: 545880 |
What is advantages and disadvantages between IRA traditional and Roth IRA? IF i am 25 years old starting saving now and how much would i have if I waited for another 10 years before starting contributing to IRA? Assuming I have an average rate of return of 6% per year? |
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There is no answer at this time. |
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Subject:
Re: Retirement IRA Roth and Traditional
From: nh786-ga on 21 Jul 2005 11:30 PDT |
In case of roth IRA your money grows tax free and you do not pay taxes on income that you earn out of investments made thru a roth ira account. Since withdrawals are not reportable income, they won't affect your adjusted gross income during retirement. Whereas with traditional IRA the money that you withdraw at retirement is taxed as ordinary income since you get a deduction today from your income when you contribute to a traditional IRA You are 25 and assume to retire at 60 so another 35 years your contributions to traditional IRA account @ 3000 eb=very year will become (use excel) =FV(8%,35,-3000) = $516,950 If you waited 10 years to begin your contribution then you have 25 years;hence =FV(8%,25,-3000) = $219,317 plus the savings for these 10 years @ 3000 *.75 ($2250)(assuming a tax bracket of 25%) per year for 10 years (from age25 to 35)growing at the rate of 6% (8% is the return pre tax and after tax will be 6%) =FV(6%,10,-2250) = $29,657 at age 35. This 29657 at age 35 will become 127,283 at age 60 growing @ 6% per year (post tax rate) Hence at age 60 you will have a total of 127283 + 219317 = 346,600 versus 516,950 if you were to save from age 25 in trad IRA; a difference of 170,349 in 35 yars from now. which again in todays dollar assuming an inflation of 3% per year is like having 170,349/(1.03^35) = 60,539 of less wealth then |
Subject:
Re: Retirement IRA Roth and Traditional
From: nh786-ga on 21 Jul 2005 11:40 PDT |
Sorry I assumed a return of 8% but you get the idea. If its 6% then 516,950 actually will be =334,304 and so on.. that you can easliy do using excel. And the net difference = 97,696 and in today dollars terms = 34719 |
Subject:
Re: Retirement IRA Roth and Traditional
From: kbrower-ga on 27 Jul 2005 09:38 PDT |
In order to answer the question you need to know what tax bracket you will be in when putting the money in and what tax bracket you will be in when taking the money out. If you are in a lower tax bracket now then you will be when you a retire a Roth IRA probably is the better deal. |
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