Originally Posted by globalexpress

Everyone has access to a Roth nowadays with the new tax law conversion limits, even high earners, even if you do not have access to a Roth 401k at work. So if you prefer to contribute to a Roth, you and your spouse can dump in 10 grand per year. If you and/or the spouse are 50 or older, you can put an extra grand in for each of you that meet that age requirement. So that's 12 grand for when you get older. Since most people don't even save that much for retirement anyway (yes I realize YOU do but most don't) not having a Roth at work is a moot point.

There was some discussion earlier in the thread about whether to contribute to a deductible vehicle (401k for example) or a Roth. Consider this scenario:

Pilot A is in the 25% tax bracket and plans on being a good saver and anticipates being in the 25% tax bracket when he retires.
Pilot B is in the 25% tax bracket and plans on being a good saver and anticipates being in the 25% tax bracket when he retires as well.

Both pilots have 10K in pretax dollars to contribute to their retirement plan in year 1 and make no further contributions (to keep things simple). Both pilots earn 10% annualized on their investments every year. Pilot A invests entirely in a deductible 401K. Pilot B invests entirely in a Roth 401k. After X years, they retire and cash out their 401k's to buy a boat to attract a hot, young twinkie (both pilots divorced in this example). Who will be able to buy the bigger boat and therefore get the hottest trophy wife? The answer may be surprising. It goes to show that it is difficult to determine which investment vehicle is best without a crystal ball or the benefit of hindsight.

Let's say X is 10 years in this example.

Pilot A puts in the full 10K in his deductible 401K because no taxes are deducted. After 10 years he has $23579.84.

Pilot B puts in only $7500 into his Roth because taxes come out first ($10K * (1-.25))= $7500. After 10 years he "only" has $17684.61. Pilot A wins, right?

Nope. They both are cashing out to buy that boat. Uncle Sugar has to be paid by Pilot A. Pilot B owes nothing more in taxes.

Pilot A will owe 25% on that 23K+ balance. ($23579.48 * (1-.25))= $17684.61

So who gets the bigger boat? Neither! They both end up with the same exact after tax balance no matter what value is assigned to X. Fortunately for them both, the hottest trim in town are twins, they all live in rural Arkansas so a boat only worth 17K is impressive to these hot young women, and they both live happily ever after. The End.

I guess the point is that unless you know what tax bracket you're going to be in the future compared to now (crystal ball anyone? Will taxes 10 or 20 or 30 years from now be higher or lower for you?), the decision between Roth and deductible plan can get a bit fuzzy.