A Roth IRA is a tax-advantaged retirement account funded with income taxed upfront. If the same tax rate applies at funding and withdrawal, a Roth IRA and traditional IRA can produce equal after-tax values. section 9.1.1
Comparing IRA and Roth IRA outcomes
Start with pretax income X, invest for T years at return r, and compare tax rates. A traditional IRA produces X(1+r)^T(1−τ_T); a Roth IRA produces X(1+r)^T(1−τ_0). The Roth IRA is preferable when the future tax rate exceeds the current rate; a traditional IRA is preferable when it falls. section 9.1.1
Roth IRA decisions depend on withdrawal sequencing, conversions, and beneficiaries:
- Compare Roth IRA withdrawals with traditional IRA withdrawals after considering the tax drag already imposed on taxable brokerage accounts. section 9.1.1
- Convert traditional IRA funds to a Roth IRA to fill a tax bracket while spending from taxable assets; conversion taxes are paid in the conversion year. section 9.2.6
- Apply a separate five-year period to each conversion; withdrawing converted principal before five years and before age 59½ generally triggers a 10% penalty. section 9.2.6
- Plan inherited Roth IRAs under the ten-year rule: nonspouse beneficiaries generally have ten years to distribute assets, without required distributions during years one through nine. section 9.3.2
Table 9.5 Comparison including the Roth conversion strategy
| Strategy | Number of years money lasts |
| IRA first, then taxable | 40.0 |
| Taxable first, then IRA | 48.7 |
| Fill 12% bracket first | 44.5 |
| Roth conversion | 53.2 |
Compare four withdrawal strategies quantitatively: IRA first, taxable first, filling the 12% bracket, and Roth conversion. section 9.2.6
