WHAT HARRY SAYS: For a youngster like you, thinking of your long-term future is wonderful. Living beneath your means is the way to a secure future. Let me assume some numbers and see how we come out: that you're able to put aside $4,000 a year, the interest rate on your investment will average 4 percent and you have 40 years to retirement. At your present tax bracket of 15 percent, a contribution to a regular IRA will save you $600 a year, which you presumably invest elsewhere.
In 40 years you'll have $380,100 in the IRA and $57,000 from the investment of the tax saving. The IRA money will then be taxable. In the Roth deal, there is no current deduction, so we'll have only the $4,000 to accumulate to that $380,100, but withdrawals will be tax-free. If the tax rates at withdrawal time are still 15 percent (very unlikely), your net will still be the $380,100. With the regular IRA, your net from the IRA after taxes will be $375,135 (85 percent of [$380,100 + $33,000 interest on the $57,000] plus the $24,000 investment). Assume higher taxes in the future, and the Roth has an even greater advantage.
Email Harry Gross at firstname.lastname@example.org or write to him at Harry Gross c/o the Daily News, Box 8263 Philadelphia, PA 19101. Harry urges all his readers to give blood - contact the American Red Cross at 800-Red Cross.