Originally Posted by
sailingfun
Your not factoring in the power of compounding tax deferred on the extra 20% which for most legacy airline pilots is more likely 40% with state taxes and overall income. If tax rate is the same in retirement it’s a wash.
Simple example, you have 10,000 a year to contribute. With a conventional IRA and a 8% average return you will have over 1.2 million in 30 years. With a Roth if your current tax rate is 35% you will have just under 800,000. If your tax rate stays at 35% the 1.2 million is worth 780,000 post tax. Again it all comes down to if you think your taxes will be lower or higher in retirement and that taxes are enacted on Roth’s.
Your argument is mathematically correct, but real world obtuse. People aren’t choosing whether to max out a traditional IRA (or 401k) or to put a, tax reduced, lesser amount into a Roth account. They are choosing between maximizing each. The Roth absolutely costs more upfront but also provides a far higher degree of certainty about what you have in retirement since you don’t have to account for unknown future tax policies.
Most pilots will have the ability to max out their IRA (both varieties) within a year or two of starting at a regional or the military. Maxing out your 401k or TSP will likely have to wait until they make captain at either. Once you throw in the vastly more flexible withdrawal rules of a Roth IRA in retirement, the advantages really pile up.