Date: Fri, 8 Dec 2006 15:18:04 -0600
From: "Mark Freeland" 
Newsgroups: misc.invest.financial-plan
Subject: Re: Guidance on managing $s
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	37xqg84WM2QhrISo43V/ZnnW3T1co4vKGu1dZQeIDnLba9jhkYohhg==
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 wrote in message 
news:yobwt52mcak.fsf@panix3.panix.com...
> t@toddh.net (Todd H.) writes:
>> "really_novice_investor"  writes:
>
> See a recent thread here where I compared the net results of
> investing in a regular IRA (or 401k), a Roth IRA and investing
> after-tax in highly tax-efficient vehicles - assuming the
> same tax rates, the same amount invested, the same return
> on the investments themselves

news:yoblkltvurv.fsf@panix1.panix.com or
http://groups.google.com/group/misc.invest.financial-plan/msg/f266b19183823c84

One of your assumptions was different from this.  You assumed the same 
amount of money, pre-tax, to invest.  The amount actually invested in the 
Roth IRA was less, because some of that pre-tax money was used to pay taxes.

:: IRA:
:: Pay no taxes now.  Invest $100K
 ...
:: Roth IRA:
:: Pay taxes now on the $100K, invest $75K

> - and the net results from
> those investments.  The 401k and Roth are identical given
> those assumptions, in the end.

Precision is important, because you had another unstated assumption - that 
one didn't have enough pre-tax money to max out the Roth.  If one did, as I 
showed in a followup, the Roth was superior (with all other assumptions as 
stated above).

news:kZ5ch.189$qO4.90@newssvr13.news.prodigy.net or
http://groups.google.com/group/misc.invest.financial-plan/msg/b7e4e24ceaa01039

Nevertheless, I absolutely agree that if one is cash limited (as opposed to 
limited by legal maximums on contributions), then a Roth 
contribution(whether IRA or 401(k)) is no better or worse than a pre-tax 
contribution (whether IRA or 401(k)), in terms of dollar/net tax results.

There are, of course, other factors.  Many large 401(k) plans offer cheaper 
institutional shares of funds than one can get at the retail level (on the 
other hand, many small 401(k) plans are wrapped in annuities that cost more 
than a retail IRA).

As someone pointed out in another thread, a (traditional, not Roth) 401(k) 
will reduce your adjusted gross income(AGI), which can have all sorts of 
good effects like making you eligible for a  Roth conversion.  (Contributing 
to a Roth won't reduce your AGI).

Mark Freeland
BnetOnewsX@sbcglobal.net