Baltimore, I'm sorry I'm being so critical of your method. I think you are misleading others with a faulty analysis and I feel I need to call you on it.
Here is how I would correct TJKohlers original hypothetical:
Assumptions:
25% tax bracket
10% annual gains
Time table 5 years.
! $3000 after-tax put into IRA each year. (For Traditional this is a 4000 contribution less a $1000 tax deduction benefit)
! No Tax benefit from the deduction put into a taxable account because it is normalized out of the analysis.
Year ROTH Traditional
1.....3000....4000.....
2.....6300....8400.....
3.....9930...13240....
4.....13923...18564....
5.....18315...24420....
The Traditional 24420 is then worth, after taxes,
20%TB......25%TB....30%TB
19536......18315....17094
TJKOHLER, consider that many people have less expenses in retirement and based on today's tax structure that would lead to a smaller TB.
Retiree's may be beyond the mortgage years true, so they don't have the deductions for mortgage interest but they also don't pay a mortgage. Which would you prefer!? Also, many people do not have the expense of supporting children in their retirement years.
Also, it is hard to predict how the tax code will change between now and a retirement that is several decades away. Suppose an 18% flat tax goes into effect just before you retire - where does that leave your Roth accounts?
[This message has been edited by blackdog (edited February 09, 2005).]