Roth vs. Deductible - Some Conclusions and FAQs
Should I convert my deductible IRA to a Roth IRA?
The Roth IRA does offer an advantage, if you use funds from outside your existing IRA to pay the taxes due on conversion.
If you consume your IRA in order to pay the taxes, then conversion will give you no advantage.
Does a Roth IRA offer an advantage on future contributions?
The Roth IRA does offer an advantage, if the total amount of your contributions (both to the IRA and to a non-sheltered account) is greater than the IRA contribution limit allows.
If you aren't maximizing your IRA contributions, then the Roth IRA will give you no advantage over a traditional deductible IRA.
Even though the Roth IRA looks like a better deal for me, I hate the idea of giving up the deduction I get with a deductible IRA.
That's a natural reaction, but it's purely psychological.
Don't look at the deduction as "money you're getting back"; look at it as "money you aren't sheltering".
[That right there is the key to understanding the Roth IRA!]
The general principle still applies here: Roth allows you to shelter a greater portion of your money.
You should check the second case study to see how this works.
I expect my tax bracket to be lower during retirement than it is now. Should I choose a Roth IRA or a deductible IRA?
This is something you have to decide for yourself after using the calculator with several realistic numbers for your expected tax rate during retirement, and seeing how the numbers play out.
The only definite conclusion is that in many cases the Roth IRA does offer enough of an advantage to offset the lost benefit from the lower tax rate.
What happens when I turn 70½?
Unlike a deductible IRA, a Roth IRA does not require that you start withdrawing funds at age 70½ or any other time.
So this is a partial exception to the first two points, above: Roth always gives you the potential advantage
of letting your money accumulate within your sheltered account longer than is allowed with a deductible IRA.
What else do I need to know?
You need to understand the various rules and regulations that may apply to your own situation.
Some of these may restrict your ability to contribute to a Roth IRA; others may make a Roth IRA particularly suitable for you.
See the rules page in the main article for more.