Roth IRA vs. Ordinary IRA
At A Glance
|
100%
Conversion |
No
Conversion |
Savings in
Account at Retirement |
Total Retirement
After-tax Withdrawals |
Savings in
Account at Retirement |
Total Retirement
After-tax Withdrawals |
21-year old
individual |
$59,000 |
$115,400 $5,770/year |
$65,600 |
$88,500 $4,425/year |
35-year old
couple |
$402,500 |
$786,000 $39,300/year |
$466,000 |
$640,000 $32,000/year |
50-year old
couple |
$317,200 |
$619,400 $30,970/year |
$390,700 |
$547,600 $27,380/year |
Some final considerations
These calculations were done assuming a 34%
income tax rate throughout the lifetime of the individuals. However, if you expect your
income tax rate to be significantly lower during retirement, the balance may change in
favor of an Ordinary IRA. For example, if the 50-year old couple falls to the 15% tax
bracket in retirement, they will actually do better having stayed in an Ordinary IRA
because of the reduced tax burden. Their annual income would be $33,400, which is $2,500
higher than the income expected from a tax-free Roth IRA. However, if the 21-year old
falls into the 15% tax bracket at retirement, it does not change the analysis. His annual
income could be higher under the Roth IRA. The 35-year old couple's annual income is
roughly the same in either case if their tax bracket is reduced to 15%. |
