I can't predict what tax bracket I'll land in the future

[phimag512]

I already contribute to my Roth IRA, however I know you can deduct contributions for the tIRA.  What if I'm not certain my tax bracket will be higher later on, would it make sense to just have both Roth and tIRA and split the contributions? 

[seattlecyclone]

If you save a decent percentage of your salary, you should probably assume that your tax bracket will be no higher in retirement unless you have a good reason to believe otherwise (big pension, etc.). This is especially true since you already have some Roth dollars that won't count as income at all when you withdraw them. So when you retire your taxable income will likely be less than your spending, while today it is likely higher.

[dandarc]

http://www.gocurrycracker.com/never-pay-taxes-again/

Personally going traditional, but we're in the 25% bracket.  If you're in the 15% or 10% brackets, you might be less confident in withdrawing at a lower rate.  Keep the saver's credit in mind in those brackets though - that thing really screws with the math at certain incomes.

[FLBiker]

We do tIRA (married, joint, ~$115K) but I did Roth for years.  We live on much less than we earn, so there's no reason that our tax bracket in retirement would be higher.

[JLee]

Even if your tax bracket is higher down the road, remember that all the tax-deferred money will be growing over time too (instead of not existing, having already been paid to Uncle Sam).

[rpr]

Even if your tax bracket is higher down the road, remember that all the tax-deferred money will be growing over time too (instead of not existing, having already been paid to Uncle Sam).

I don't think this is correct. If you know for sure that your tax bracket is going to be higher in the future, then you are better off putting it in the Roth instead of the Traditional. This is assuming that both the contributions going in and the withdrawals coming out are in the marginal range.

[nereo]

I have never met a person who knew what their tax bracket would be several years into the future.  No one.  Ask yourself this: what will the take brackets be in the year 2020? 2040?  You have no idea.  Why?  Because they will almost certainly be altered, just as they have every decade since our country was founded (sometimes multiple times per decade).

THe best you can do is take a look at what your taxes are relative to the rest of society, and make a judgement call about whether your spending rates during retirement will put you ahead or behind where you are now.  Adjust based on whether you think we're likely to lower taxes in the future or raise them (political ideology).

Remember you can do conversions later (as long as they don't change that provision).

[phimag512]

Thanks everyone, good points on both sides. If I had to take my best guess, it's that the tax rate won't be higher in my situation, so it makes the most sense to go with the tIRA.

[tobitonic]

I realize I'm more "big picture" than many / most on this forum, so keep that in mind...but I'd just advise you to figure out what you'd like to live off and save enough to get there. You'll adjust as you get closer to the target.

[MDM]

...the tax rate won't be higher....

If you expect your marginal rate to be the same in retirement as it is now, and you can contribute the maximum amount, Roth won't be worse and may be better.

In any case, you can refine your retirement tax bracket estimate each year and change that year's contribution accordingly.

[StetsTerhune]

There's no roth 401K offered at my company, so I already have a huge amount that I put into (what will one day soon be rolled over to be) a traditional IRA. Therefore I put the 5.5K max into a roth IRA, for diversification's sake.

[FLBiker]

There's no roth 401K offered at my company, so I already have a huge amount that I put into (what will one day soon be rolled over to be) a traditional IRA. Therefore I put the 5.5K max into a roth IRA, for diversification's sake.

Good perspective.  We've got roth and trad IRAs trad 403bs, along with 457s, which would also be considered trad.  We're something like 70/30 trad to Roth right now, but we've been doing new money in trad.  Maybe I should try to keep a bit more balance.

[Rubic]

My current allocation:

• 65% Traditional IRA
• 35% Taxable accounts
• 2% Roth IRA

This was not part of a master plan (it just opportunistically worked out that way), but I think if you have some funds in taxable accounts -- with low tax rates on long-term capital gains -- you've got a lot of flexibility in rolling over Traditional -> Roth, especially if you retire early.

[nereo]

My current allocation:

• 65% Traditional IRA
• 35% Taxable accounts
• 2% Roth IRA

What's the other 3%?
cause... just wondering....

[onlykelsey]

cash?

[nereo]

cash?

beanie babies? ("they'll make a comeback soon!!")
edit: I would have figured that "cash" would be part of "taxable accounts".... but that's just me.

[Rubic]

My current allocation:

• 65% Traditional IRA
• 35% Taxable accounts
• 2% Roth IRA

What's the other 3%?
cause... just wondering....

Cash or cash equivalents, set aside for special opportunities.  Taxable accounts implies long-term capital gains that I would likely pay upon withdrawal.

[nereo]

My current allocation:

• 65% Traditional IRA
• 35% Taxable accounts
• 2% Roth IRA

What's the other 3%?
cause... just wondering....

Cash or cash equivalents, set aside for special opportunities.  Taxable accounts implies long-term capital gains that I would likely pay upon withdrawal.

ok. I was seriously hoping you'd say beanie babies though... ;-)

[phimag512]

There's no roth 401K offered at my company, so I already have a huge amount that I put into (what will one day soon be rolled over to be) a traditional IRA. Therefore I put the 5.5K max into a roth IRA, for diversification's sake.

Good perspective.  We've got roth and trad IRAs trad 403bs, along with 457s, which would also be considered trad.  We're something like 70/30 trad to Roth right now, but we've been doing new money in trad.  Maybe I should try to keep a bit more balance.

That's a lot of different retirement accounts. So do you choose every year what to invest in or are you splitting everything up? I have a Roth 401k available with my company, but I'm electing to stay with the traditional. The only downside is that there is no match :( I do have it in a vanguard index that has a low expense at least.

[catccc]

Even if your tax bracket is higher down the road, remember that all the tax-deferred money will be growing over time too (instead of not existing, having already been paid to Uncle Sam).

Seems that way, but it isn't really...  If you invest $5,500 in a traditional, at 7% in a year you'd have $5,885.  Let's just say you could take it out at this point and pay taxes, and you are in the 15% tax bracket.  Then you'd have $5,002.25.  Now let's do the math from Roth, you've already paid taxes, side.  Instead of investing $5,500, you pay the 15% taxes now, investing only $4,675.  In a year it's grown 7%, which is (magically?!) $5,002.25.  Unless they are invested differently, or unless your tax rate changes, the scenarios have exact the same outcome.  So your point that the tax deferred money is growing doesn't make for a better situation is your tax bracket is higher down the road.  You'll still be worse off if your tax bracket is higher down the road.

That said, I actually switched to a tIRA this year, which will be deductible for me.  I've been doing a Roth for a long time now.  I'm in the 15% tax bracket, but I have a lot of money put away that will be tax free when withdrawn.  I want to take the tIRA contribution off the top of my income in the current year, and stick it in the 0% level in future years (aka the amount of my standard deduction and personal exemptions).  So I don't pay taxes now and I don't pay taxes later.  Beautiful.  I think.

[Emergo]

This thread is making my brain burst. I wish someone could simplify it. I am still torn between the two.

[nereo]

Even if your tax bracket is higher down the road, remember that all the tax-deferred money will be growing over time too (instead of not existing, having already been paid to Uncle Sam).

Seems that way, but it isn't really...  If you invest $5,500 in a traditional, at 7% in a year you'd have $5,885.  Let's just say you could take it out at this point and pay taxes, and you are in the 15% tax bracket.  Then you'd have $5,002.25.  Now let's do the math from Roth, you've already paid taxes, side.  Instead of investing $5,500, you pay the 15% taxes now, investing only $4,675.  In a year it's grown 7%, which is (magically?!) $5,002.25.  Unless they are invested differently, or unless your tax rate changes, the scenarios have exact the same outcome.  So your point that the tax deferred money is growing doesn't make for a better situation is your tax bracket is higher down the road.  You'll still be worse off if your tax bracket is higher down the road.

Following your own logic I think you've shown just the opposite.
The main point is that you won't be paying 15% the taxes on the tIRA when you withdraw it in the future (assuming tax rates hold the same)- that's the 'last dollar in, first dollar out' idea.  It's best explained as an example.

Let's suppose you a single, no dependents, and earn $55,000/year.  This puts you solidly in the 15% tax bracket.  You pay about $6,900 in federal taxes. You could either invest $5500 worth of your income each year in a tIRA, or pay taxes on that amount (15%) and invest $4675.  Assuming 7% returns, after 20 years it would look like this.  Ultimately you spend about $42k/year

tIRA after 20 years assuming 7% returns: $241,250
ROTH after 20 years: $205,069

But here's where the tax savings comes in.  Let's suppose that you have absolutely no other sources of income, you don't want to mess with a ROTH pipeline, and you want to keep your spending levels about the same (~$42k).  Now - taking the standard deduction of -$6,300 you will pay about $4,294 on that money, giving you a tax rate of 10.2%

Ultimately, you get a 15% tax deduction now and only pay 10.2% in taxes down the road.  Or put another way, for every $10,000 you put into as a ROTH, you pay $1,500, whereas when you do it as a tIRA you pay only $1,020.  You save $480 in taxes for every $10,000 contributed.  This of course can be optimized much further.

[MDM]

...that's the 'last dollar in, first dollar out' idea.  It's best explained as an example.

As intuitive as that idea is, it is an incorrect idea. 

Simple math first, with i = annual return and n = number of years:
  Trad = Pre-tax amount * (1 + i)^n * (1 - future marginal rate)
  Roth = Pre-tax amount * (1 - current marginal rate) * (1 + i)^n

Take the ratio:
  Trad / Roth = (1 - future marginal rate) / (1 - current marginal rate)

If the future marginal rate is lower than the current, then Trad > Roth and vice versa.  If the rates are equal the results are identical - if "Pre-tax amount" is less than or equal to the IRS maximum contribution. 
As implied in a post above, the result is a little different  if "Pre-tax amount" is above the IRS maximum.  We'll avoid the details of that rabbit hole for now, but they can be found in https://www.bogleheads.org/forum/viewtopic.php?f=10&t=140758 for anyone interested.

Back to the "marginal vs. marginal" vs. "marginal vs. average" discussion.  See http://forum.mrmoneymustache.com/investor-alley/deciding-between-roth-and-traditional-ira-based-on-marginal-tax-rate/ for an MMM forum view, and https://www.bogleheads.org/forum/viewtopic.php?f=2&t=182081 for a current Bogleheads discussion.  Post https://www.bogleheads.org/forum/viewtopic.php?f=2&t=182081&p=2760678#p2760183 gives a good example (emphasis added):

    rkhusky wrote:
    Suppose that in this case one has $850K in a Traditional IRA account (invested in a MM account paying 0% interest for simplicity). The subject retires at 55 with no pension and will take SS at 70. $56,292 is withdrawn every year.
    What is the average tax rate that they will pay on all the withdrawals? 13% was calculated above.
    Does it make sense to have paid 25% tax while contributing, in order to pay no taxes in retirement instead with a Roth account worth $637.5K (= 0.75 * $850K)? No.
    Why? Because this Roth worth $637.5K will only last 13 years at $49K/yr before it is depleted. The Traditional account will last 15 years with $5.6K left over. That's a difference of over $100K.
    And the correct comparison is between the 25% that would have been paid to have the Roth vs. the average 13% tax rate on withdrawals.

Yes, examples are good.

Let's take the situation above but back up one year so the subject is 54 and is $18K short of having the $56,292 x 15 = $844380 needed in the t401k.

Her marginal tax rate this year is 15%. If she looks at the 13% average withdrawal rate she will conclude "15% > 13%, therefore traditional is better." If she looks at the 25% marginal withdrawal rate she will conclude "15% < 25% therefore Roth is better." Let's plug in some numbers and see which is correct.

If $18K goes into the traditional account, she then retires and withdraws $56,292/yr, pays $7,292 in tax and has $49,000/yr to spend.

If $18K * 85% = $15300 goes into a Roth instead, she withdraws $55,092/yr from the t401k, pays $6,992 in tax and has $48,100 from the t401k. She adds $15300/15 = $1020/yr from the Roth and has a total of $49,120/yr to spend.

Comparing marginal vs. marginal allowed her to make the correct decision.

At one point I thought (and have seen in many places) that marginal vs. average was correct, but having run the numbers I agree with https://www.bogleheads.org/wiki/Traditional_versus_Roth: "The main reason to prefer one type of account over the other is the comparison of marginal tax rates. If your marginal tax rate now is higher than your estimated marginal tax rate at retirement, then the traditional account is better; if it is lower, then the Roth account is better."

[nereo]

thanks for the correction MDM.  Looks like I have a bit more studying to do...

[MDM]

thanks for the correction MDM.  Looks like I have a bit more studying to do...

Under the category of "no one as committed as the converted," I once glommed on to the "marginal vs. average" idea myself, only to be shown the error of my ways....

[Eric]

Wait, why is Marginal vs Average not a correct comparison?  The numbers in your quoted Bogleheads example MDM are all over the place and look like and apples to oranges comparison.

I also read the MMM link and am confused by that.  At one point in your explanation you state:

Fast forward a few more years, and Joe's investments have grown enough that withdrawals over his retirement life span are projected to hit $39,050/yr.  The average rate is irrelevant to Joe's decision.  Any future contributions to traditional accounts will be withdrawn at a 15% marginal rate, so Joe might want to switch to Roth (or not) at this point.

Which seemed to jump from out of nowhere.  Why did you start comparing $20k withdrawals with $40k withdrawals?

When you withdrawal, you do pay taxes at your average rate.  When you contribute, you save taxes at your top marginal rate.  What am I missing?

[seattlecyclone]

Wait, why is Marginal vs Average not a correct comparison?  The numbers in your quoted Bogleheads example MDM are all over the place and look like and apples to oranges comparison.

I also read the MMM link and am confused by that.  At one point in your explanation you state:

Fast forward a few more years, and Joe's investments have grown enough that withdrawals over his retirement life span are projected to hit $39,050/yr.  The average rate is irrelevant to Joe's decision.  Any future contributions to traditional accounts will be withdrawn at a 15% marginal rate, so Joe might want to switch to Roth (or not) at this point.

Which seemed to jump from out of nowhere.  Why did you start comparing $20k withdrawals with $40k withdrawals?

When you withdrawal, you do pay taxes at your average rate.  When you contribute, you save taxes at your top marginal rate.  What am I missing?

No, you don't pay taxes at your average rate. Marginal rates still matter. If you take an action now that will affect your taxable income during retirement (such as contributing to a Roth account instead of a traditional account), this change in income and the tax you pay happens on the margin.

Suppose you plan to withdraw 4% from each of your retirement accounts each year. Suppose you currently have $500k in a traditional IRA. If you retired now, you would then be withdrawing $20k per year. If you file single as a retired person and have no other income, the first $10,350 is tax free (standard deduction plus personal exemption), and then the next $9,275 is taxed at 10%. That leaves $375 to be taxed in the 15% bracket. Your total tax in this scenario is $983.75, giving you an average tax rate just under 5%.

You decide you're not ready to retire yet with just $500k. You keep working this year and have the choice between traditional contributions or Roth contributions into your retirement accounts. If you add $25k in Roth dollars to your stash, your taxable income in retirement won't change. You'll still be at $20k AGI with $1k of Roth withdrawals added on. But if you instead contribute $25k in traditional dollars, you'll now increase your retirement AGI to $21k. This increase in income is taxed at your marginal rate of 15%, not your average rate of 5%. The lower brackets are already spoken for with your previous contributions. New contributions will be taxed higher.

[MDM]

Wait, why is Marginal vs Average not a correct comparison?  The numbers in your quoted Bogleheads example MDM are all over the place and look like and apples to oranges comparison.

The Bogleheads' example made sense to me: the numbers showed that making a Roth contribution resulted in more withdrawal money.  The marginal contribution rate was 15%; the average withdrawal rate was 13% and the marginal withdrawal rate was 25%.  If marginal vs. average was correct, then (because 15% > 13%) traditional would be better.  It wasn't, indicating that marginal vs. marginal is the correct comparison.

I also read the MMM link and am confused by that.  At one point in your explanation you state:

Fast forward a few more years, and Joe's investments have grown enough that withdrawals over his retirement life span are projected to hit $39,050/yr.  The average rate is irrelevant to Joe's decision.  Any future contributions to traditional accounts will be withdrawn at a 15% marginal rate, so Joe might want to switch to Roth (or not) at this point.

Which seemed to jump from out of nowhere.  Why did you start comparing $20k withdrawals with $40k withdrawals?

Because, for MFJ with no other income or deductions, $39,050 gross translates to $18,450 taxable, the border between the 10% and 15% brackets.

When you withdrawal, you do pay taxes at your average rate.  When you contribute, you save taxes at your top marginal rate.  What am I missing?

Yes, you do pay taxes at your average rate if you look at total income and total taxes.  You also pay taxes at your marginal rate if you look at your last dollar of income and how much that was taxed.

Let's look at a year in a working life.  In previous years, good mustachian behavior has occurred and retirement accounts have been funded.  But this year the lure of cinnamon-spiced lattes and other hedonism is strong.  Let's just skip a year of 401k and IRA contributions - what harm could it do?  You check your current account balances and determine that, in retirement, you will be able to withdraw $W/yr, paying $X/yr in taxes.  Your average tax rate will be Y% and your marginal rate will be Z%.  This is the situation if you do not make a 401k/IRA contribution this year.

Then sanity returns, you realize those lattes are not your friend, and you decide to contribute.  You see that if a traditional contribution is made, you save at your current marginal rate.  Looking further, you also see that this year's contribution will allow you to withdraw more than $W/yr in retirement - and each extra $/yr that you withdraw will be taxed at your marginal rate in retirement.

With that knowledge, you compare the two marginal rates and decide if, this year, you will contribute to traditional or Roth. 

You also look at the previous post and say "hey, if seattlecyclone sees it this way, it must be true!"

[Eric]

You decide you're not ready to retire yet with just $500k. You keep working this year and have the choice between traditional contributions or Roth contributions into your retirement accounts. If you add $25k in Roth dollars to your stash, your taxable income in retirement won't change. You'll still be at $20k AGI with $1k of Roth withdrawals added on. But if you instead contribute $25k in traditional dollars, you'll now increase your retirement AGI to $21k. This increase in income is taxed at your marginal rate of 15%, not your average rate of 5%. The lower brackets are already spoken for with your previous contributions. New contributions will be taxed higher.

Here's where I'm getting lost, and I think it's the apples to oranges comparison.  Why am I increasing expenses (retirement income) just because I have more money?  If I spend $20k/yr, then I spend $20k/yr.  Adding another $25k to the investment balance should decrease my withdrawal rate, not increase my withdrawal amount.

But ignoring that, you still pay less taxes on traditional.  You're now paying taxes on $21K instead of $25K.  No?

[Eric]

You also look at the previous post and say "hey, if seattlecyclone sees it this way, it must be true!"

Obviously!!  :)

[Eric]

Wait, why is Marginal vs Average not a correct comparison?  The numbers in your quoted Bogleheads example MDM are all over the place and look like and apples to oranges comparison.

The Bogleheads' example made sense to me: the numbers showed that making a Roth contribution resulted in more withdrawal money.  The marginal contribution rate was 15%; the average withdrawal rate was 13% and the marginal withdrawal rate was 25%.  If marginal vs. average was correct, then (because 15% > 13%) traditional would be better.  It wasn't, indicating that marginal vs. marginal is the correct comparison.

Maybe you can walk me through it then, because I've read it 7 times and can't figure out how they're coming up with their numbers.  For instance near the end, "She adds $15300/15 = $1020/yr" why is this being divided by 15 here?

[Emergo]

So is the general consensus in this thread is that traditional is better than roth? Too many numbers and terms.

Even for someone whose situation is he might need to grab money for emergencies?

[seattlecyclone]

You decide you're not ready to retire yet with just $500k. You keep working this year and have the choice between traditional contributions or Roth contributions into your retirement accounts. If you add $25k in Roth dollars to your stash, your taxable income in retirement won't change. You'll still be at $20k AGI with $1k of Roth withdrawals added on. But if you instead contribute $25k in traditional dollars, you'll now increase your retirement AGI to $21k. This increase in income is taxed at your marginal rate of 15%, not your average rate of 5%. The lower brackets are already spoken for with your previous contributions. New contributions will be taxed higher.

Here's where I'm getting lost, and I think it's the apples to oranges comparison.  Why am I increasing expenses (retirement income) just because I have more money?  If I spend $20k/yr, then I spend $20k/yr.  Adding another $25k to the investment balance should decrease my withdrawal rate, not increase my withdrawal amount.

The person in my example always intended to withdraw $21k per year, and kept working until they had enough to do it. Before their last year of work they had saved up $500k, all in traditional accounts. That's enough for $20k/year at a 4% withdrawal rate, and all of it would count as income for federal tax purposes.

They still needed to save $25k to get to their $525k goal. The question was whether traditional or Roth would be better. To figure that out you need to look at current vs. future marginal tax rates. You already have $500k in traditional. That means you're going to be having AGI at least $20k in retirement no matter where you contribute this year. Therefore it's irrelevant that you pay an average rate under 5% on the first $20k. The tax you pay on the next $1k is what matters for your decisions about where to stash your next $25k.

But ignoring that, you still pay less taxes on traditional.  You're now paying taxes on $21K instead of $25K.  No?

Sure, you're right. A dollar in a Roth account is worth more than a dollar in a traditional account, since the traditional account hasn't been taxed yet. I ignored this point for the sake of the example because it doesn't really affect the decision here. Many people rely on this fact as a reason to prefer Roth over traditional if you can max out your annual contribution, since the nominal limits are the same but the post-tax value of the Roth is higher. While this is true, I view this strategy as more of a tiebreaker if you really do expect your marginal tax rate to be exactly the same in retirement as it is today. If you expect it to be even slightly lower, traditional is likely to win out.

[MDM]

Maybe you can walk me through it then, because I've read it 7 times and can't figure out how they're coming up with their numbers.  For instance near the end, "She adds $15300/15 = $1020/yr" why is this being divided by 15 here?

The example is set up to avoid SS, pension, etc.: "The subject retires at 55 with no pension and will take SS at 70."  So the withdrawals occur over a period of 15 years, from age 55 to age 70.  They also avoided investment gains by having money "invested in a MM account paying 0% interest for simplicity."

At one point it mentions "IRA" and at others "401k" but I don't think there is anything meant other than "tax-advantaged investment accounts".

[Saving in Austin]

Our situation is a little different:

We are 54 and 51 years old and expect that we will be able to retire in 10 years. We have two factors that give me pause regarding tIRAs.

1) We may move from Texas to California in retirement meaning we will have to pay state income taxes in the future.

2) We are expecting to inherit 2 tIRAs somewhere in the neighborhood of $350K combined. That will probably happen 10-20 years from now. We already have $44K in SEP, $10K in tIRA and $150K in rIRA.

I am not sure we will be able to withdraw all of that money and stay in the lowest tax bracket. We are currently at 25% marginal rate.

[seattlecyclone]

Our situation is a little different:

We are 54 and 51 years old and expect that we will be able to retire in 10 years. We have two factors that give me pause regarding tIRAs.

1) We may move from Texas to California in retirement meaning we will have to pay state income taxes in the future.

2) We are expecting to inherit 2 tIRAs somewhere in the neighborhood of $350K combined. That will probably happen 10-20 years from now. We already have $44K in SEP, $10K in tIRA and $150K in rIRA.

I am not sure we will be able to withdraw all of that money and stay in the lowest tax bracket. We are currently at 25% marginal rate.

These are two factors that could very easily affect your combined state/federal marginal rate in retirement, making it higher than it is today. Make your contribution decisions based primarily on whether you expect your marginal rate in retirement to be higher or lower than it is today. Sounds like you're doing the right thing.

[MDM]

So is the general consensus in this thread is that traditional is better than roth? Too many numbers and terms.

Even for someone whose situation is he might need to grab money for emergencies?

It really depends on those marginal rates for the pure net worth look.  You might try www.i-orp.com and see what it predicts for your tax rates over time.

If you want to put your emergency fund into a Roth, that is defensible.  You can also play the odds and predict your income will grow through your career and put money in Roths early.

You might also predict that you will be able to keep your taxes close to $0 in retirement so 100% traditional is right for you.

It depends....

[Emergo]

So is the general consensus in this thread is that traditional is better than roth? Too many numbers and terms.

Even for someone whose situation is he might need to grab money for emergencies?

It really depends on those marginal rates for the pure net worth look.  You might try www.i-orp.com and see what it predicts for your tax rates over time.

If you want to put your emergency fund into a Roth, that is defensible.  You can also play the odds and predict your income will grow through your career and put money in Roths early.

You might also predict that you will be able to keep your taxes close to $0 in retirement so 100% traditional is right for you.

It depends....

My goal is to retire as soon as possible. Im single and do hope to marry and have kids someday. Im not sure if my wife will be as frugal like me. Im 27. That is a good breakdown you provided though..

[catccc]

Even if your tax bracket is higher down the road, remember that all the tax-deferred money will be growing over time too (instead of not existing, having already been paid to Uncle Sam).

Seems that way, but it isn't really...  If you invest $5,500 in a traditional, at 7% in a year you'd have $5,885.  Let's just say you could take it out at this point and pay taxes, and you are in the 15% tax bracket.  Then you'd have $5,002.25.  Now let's do the math from Roth, you've already paid taxes, side.  Instead of investing $5,500, you pay the 15% taxes now, investing only $4,675.  In a year it's grown 7%, which is (magically?!) $5,002.25.  Unless they are invested differently, or unless your tax rate changes, the scenarios have exact the same outcome.  So your point that the tax deferred money is growing doesn't make for a better situation is your tax bracket is higher down the road.  You'll still be worse off if your tax bracket is higher down the road.

Following your own logic I think you've shown just the opposite.
The main point is that you won't be paying 15% the taxes on the tIRA when you withdraw it in the future (assuming tax rates hold the same)- that's the 'last dollar in, first dollar out' idea.  It's best explained as an example.

Let's suppose you a single, no dependents, and earn $55,000/year.  This puts you solidly in the 15% tax bracket.  You pay about $6,900 in federal taxes. You could either invest $5500 worth of your income each year in a tIRA, or pay taxes on that amount (15%) and invest $4675.  Assuming 7% returns, after 20 years it would look like this.  Ultimately you spend about $42k/year

tIRA after 20 years assuming 7% returns: $241,250
ROTH after 20 years: $205,069

But here's where the tax savings comes in.  Let's suppose that you have absolutely no other sources of income, you don't want to mess with a ROTH pipeline, and you want to keep your spending levels about the same (~$42k).  Now - taking the standard deduction of -$6,300 you will pay about $4,294 on that money, giving you a tax rate of 10.2%

Ultimately, you get a 15% tax deduction now and only pay 10.2% in taxes down the road.  Or put another way, for every $10,000 you put into as a ROTH, you pay $1,500, whereas when you do it as a tIRA you pay only $1,020.  You save $480 in taxes for every $10,000 contributed.  This of course can be optimized much further.

My point is that all other things being equal (including other income that would fill in lower tax tiers), the traditional doesn't have more $ earning for money for you.  Because the eventual tax bite, again, assuming it is going out of and into income at the same marginal rate, will erase any perceived advantage of tax-deferred funds earning $$ prior to withdrawal.  Obviously shifting income into tiers at lower rates is advantageous.  Which is the rest of my post (that you left out of your quoted section) says:

That said, I actually switched to a tIRA this year, which will be deductible for me.  I've been doing a Roth for a long time now.  I'm in the 15% tax bracket, but I have a lot of money put away that will be tax free when withdrawn.  I want to take the tIRA contribution off the top of my income in the current year, and stick it in the 0% level in future years (aka the amount of my standard deduction and personal exemptions).  So I don't pay taxes now and I don't pay taxes later.  Beautiful.  I think.

(emphasis added.)

[neo von retorch]

My current allocation:

• 65% Traditional IRA
• 35% Taxable accounts
• 2% Roth IRA

What's the other 3%?
cause... just wondering....

Wait, how do y'all have 105% allocations? I want that! (I'd accept 102% as well...)