If the tax rate is same between now and your retirement, Roth
is the better choice. This is because both Roth/Traditional have
the same contribution limit.
Consider this senario. Say, your bracket rate is 25%. When you are
reporting tax return, you face two choices.
1. Contribute 10K to Traditional IRA and you get 2.5K tax refund
2. Contribute 10K to Roth IRA and you don't get any refund
Now let's compare return. Assume you get 5% growth for 30 years.
With Roth IRA you get
10K * 1.05^30 = 43.2K
With Tradional IRA you get
10K * 1.05^30 * 0.75 = 32.4K
2.5K* 1.05^30 = 10.8K
Total = 43.2K
Now consider the cash part you will be charged with tax for every closed
transaction, the return is likely much less. Even if you B&H for 30 years,
you'll be charged for 15% tax. So Roth does give you better return. And the
reason is that you cannot put 12.5K in traditional IRA.
However, the same tax rate is a big if. In fact, people argue you need 2M
in retirement account to be in 25% bracket assuming a 4% withdraw rate.
Very few family reached that today. But maybe it's easier for IDs here
consider the income and inflation.
My thought is that if you have 401K, using Roth to diversify should give
you more flexibility. Or if you are in low bracket now, it's also worth
it.
