![]() For these investors, the calculators may incorrectly favor the traditional IRA over the Roth. Laibson, and Brigitte Madrian, “Does Front-Loading Taxation Increase Savings? Evidence from Roth 401(K) Introductions,” Journal of Public Economics, July 2017, ). Recent evidence, however, shows that most investors instead spend the deduction generated (Saul Adelman and Mark Cross, “Comparing a Traditional IRA and a Roth IRA: Theory Versus Practice,” Risk Management and Insurance Review, August 2010, John Leonard Beshears, James J. For example, most calculators assume that an investor in a traditional IRA will invest the tax savings generated in a taxable account. Given the range of possible considerations, it is not likely that any single online calculator can pick the optimal IRA for an investor. Many online calculators are available to assist with the analysis of the benefits of a traditional and a Roth IRA. The choice between a traditional IRA and a Roth IRA is a complex one that should consider many factors beyond the investor’s age and current tax bracket. But this conventional wisdom implicitly includes a number of assumptions, not all of which may be true for a given individual. The typical advice regarding the choice between a traditional IRA and a Roth IRA is deceptively simple most of the time, a Roth IRA is the best option for younger individuals with lots of time until retirement, while a traditional IRA might work better for those closer to retirement or who are currently in a high income tax bracket. Many investment planning websites offer calculators that show investors how much they can save for retirement with each type of IRA-but how useful are they at helping investors choose between them? The authors provide an overview of the different factors that affect this decision and an analysis of how well various online calculators weigh these factors. ![]() Deciding whether a traditional individual retirement account (IRA) or a Roth IRA is the better investment vehicle can be a more complex choice than it initially appears.
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