Talk:Traditional versus Roth

Major Rewrite April 2019
I decided to do a major rewrite of this article. Major changes so far:


 * Reorganized to flow better. Higher level of discussion marginal rates at the top, followed by considerations for current and future marginal rates. Tax considerations not directly related are moved to their own section.
 * Example provided of how to predict future marginal tax rates, along with example and Excel formulas.
 * More detailed example provided for bracket straddling.
 * Added detail for the Social Security "spike" based on my own calculations. I'd like to move this to other pages as well; I may later if I have time.
 * Added notes about estate planning, RMDs, and tax diversification.
 * Added a calculation comparing Traditional and Roth with different fees

I plan to continue to edit, particularly the section "Examples of Investment Choices and Conversion" but I wanted to get these changes loaded in first. Any comments appreciated!--Fyre4ce 01:22, 27 April 2019 (UTC)
 * Major edits should be first discussed in the wiki editor's forum. Per Wikipedia policy, I have created a draft user page for your proposed updates. See: User:Fyre4ce/Traditional versus Roth (No content has been modified). Please discuss your changes in the wiki editor's forum thread titled "Wiki page needed: Traditional vs Roth" --LadyGeek 01:43, 27 April 2019 (UTC)
 * Understood. Added post in editor's forum. Feedback appreciated!--Fyre4ce 01:52, 27 April 2019 (UTC)

Misconception
I want to [b]comment on the second myth[/b] (that it is better to pay the taxes on tax-deferred accounts earlier than later). That one is true because when the taxes are paid “later”, the amount of taxes is also bigger and it is possible the larger taxes may not all fit in the same tax bracket but part of them could end up in a higher tax bracket. Celia 11:16, 11 June 2023 (UTC)


 * The fact that the amount of taxes is bigger is irrelevant; this is exactly the misconception. Suppose you are in a 25% tax bracket now and at retirement, and you have $3000 to invest.  You can contribute $3000 to a Roth account, or $4000 to a traditional account and save $1000 in taxes.  If the account doubles in value, you will later withdraw $6000 from the Roth account, or $8000 from the traditional account and pay $2000 in taxes.  You pay more taxes with the traditional account, but you break even in spending value.  The fact that some of the taxes may be paid in a different bracket, while true, is part of the decision. if you may be in either a 25% or higher bracket, you should prefer Roth; if you may be in either a 25% or lower bracket, you should prefer traditional.  This is discussed later in the "Straddling brackets" section; the decision applies for each dollar invested.  --Grabiner 13:11, 11 June 2023 (UTC)