Traditional versus Roth examples

This page contains examples related to the traditional versus Roth page.

Many of the charts below have been generated by the personal finance toolbox Excel spreadsheet. That handles most common tax situations, and is suggested as a tool many may find useful for an overview of their own situations.

Simple step change in marginal rates
When taxable income is close to a tax bracket boundary, one could choose to make traditional contributions until the marginal rate drops, then use Roth for further contributions. For a single person making $60K/yr, a little over $8K to a traditional 401k would save 22% but further traditional contributions would save only 12%, as shown here:

If that person expected to pay a marginal rate of 15% on withdrawals in retirement, the $8K saving 22% should go to traditional while the remaining $11K should go to Roth.

Worth reaching the saver's credit?
The saver's credit can provide a high marginal tax saving rate in an otherwise low tax bracket, but the actual rate depends on how much one must contribute to reach that credit.

The first chart shows the situation for a single filer starting with an Adjusted Gross Income (AGI) $500 above the first saver's credit tier. The first $500 of traditional IRA contributions would save only 12%, but contributing any amount between $500 and $2000 would save 22%. Above $2000 the marginal rate drops back to 12%.

The second chart shows the situation for a single filer starting with an Adjusted Gross Income (AGI) $5500 above the first saver's credit tier. The first $5500 of traditional IRA contributions still save 12%, but here the highest marginal rate is only a little over 15%.

A person expecting a marginal rate at withdrawal near 15% might split contributions $2000 to traditional and $4000 to Roth in the first case, but put all $6000 to Roth in the second case.