joec, those theories sound really good, so I decide to calculate it out to see if it really make that much sense. Lets assume you have nothing right now and you put $15k each year for the next 5, that’s a total of $75k. Lets also assume you’re in the 25% tax bracket, CA tax is 10%, and you make average 8% a year (obviously this can change wildly depending on your investment strategy and market condition). If you go with ROTH, you pay a total of $26250 in taxes. If you go with Traditional and 5 years from now, you got laid off in January 1st and won’t be able to find another job for a whole year (no additional income that year). With 8% compound interest, your $75k should grow to about $92225. If you convert the whole amount that year, you’re in the 25% federal and 10% tax bracket. Your total tax liability is $32278.75. If you’re unemployed for less than a year, you’d have to add that income into the traditional calculation. If the market crash and you convert at less than $75k, then traditional would be a better bet. If the market grew at more than 8%, you’d have to pay that much more in taxes. So, it’s not as black and white as that article make it out to be. That’s just assume 5 years as well. The longer you’re employed, the more advantageous ROTH becomes, due to the tax free growth. Lets assume all the above variables stay the same and you won’t be out of work until 10 years from now. Roth, your total tax liability is $52500. Traditional, your total tax liability is $80430.95.
