Roth IRA Followup

Roth IRA Followup

Hey everyone!

After thinking about it for a few days, I’ve decided not to fund the Roth IRA for 2014.  I know many people say that will say that I should, but I’m not sure that many people do the math on it.

If you invest $5,500 today, assuming 5% interest* you will earn $9,093 in interest over the next 20 years.  Assuming you are taxed at in the 28% tax bracket you would owe $2,546 in taxes.  That comes out to $127.30 a year in taxes, which seems like a small price to pay for the availability of money in the next six months. Plus, I would hope that any investments I make with the money would earn that much back.

Of course that math I did above is only good for one year, if you compound that out for 20 years, you are looking at $1,133 a year in taxes.  So you can see that it is definitely worth it to look into using the Roth ira as a retirement vehicle, I’m just going to prioritize short term cash availability over that for this year.  Hopefully that is a good idea.

Thoughts/Concerns? Let me know in the comments. Also, let me know if you’d like me to post some charts of the math.

-TRI

*During every 15 year period since its inception the market has performed at a minimum of 7%.  If you assume 2% inflation per year, that gives you a 5% interest rate with your returns adjusted for inflation.

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