<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by gardener:
FWIW and IMHO, the Roth is almost always a better deal than the Traditional IRA even if the Trad is deductible. Here's why:
Assuming you are flush enough to save the maximum, you simply can put more away with the Roth. That is because the $3000 limit is for pre tax $$$ for the Trad and after-tax $$$ for the Roth. Assume for simplicity sake you are in a 33% Fed bracket. In the Trad you put away $3000, get a $1000 tax benefit and have only invested $2000 after tax dollars. (In other words your investments get a 1/3 haircut on withdrawal). With the Roth, you put away $3000 and you get to withdraw it and all its earnings later.
Again IMHO it is well worth maxing out your 401(k) and doing other tricks such as deferring income if your employer allows it to keep your MAGI below $150K so you can do the Roth.</font>
There are some erroneous assumptions in your analysis. Notably,
<font face="Verdana, Arial, Helvetica, sans-serif" size="2">In other words your investments get a 1/3 haircut on withdrawal.</font>
Not necessarily. Your Traditional IRA contribution and its earnings are taxed AT YOUR CURRENT TAX RATE upon withdrawal. Your tax rate may be lower, perhaps considerably lower, when you are retired than when you initially put the money in. This could be because your income in retirement is much lower, and/or because income tax rates will have been reduced by the time you are retired. (On the other hand, maybe your tax rate will be higher! Hard to predict these things so many years into the future.)
(Another point: the 150-160K MAGI Roth phaseout is for married filing jointly. For single filers it is 95-110K.)
Kathy