7-51. When you are young, invest in a Roth IRA. Instead of getting a tax break when you put money aside as in most 401(k) plans, savers in Roth IRAs get totally tax free withdrawals when they retire. You should use your time (e.g., 30 years) to build tax-free retirement funds.

To illustrate the possible benefit of a Roth savings plan, suppose you are 30 years old and you invest $1,000 per year (before taxes of 20%) for 30 years. This means you will be investing $800 per year after taxes are deducted. If your personal interest rate is 10% per year, you will have this amount in 30 years: $800 (F/A, 10%, 30) = $131,595 when you retire. Compare this with a traditional IRA which allows you to invest $1,000 per year tax free. You will withdraw all the accumulated funds in 30 years, as a lump sum, and pay 24% income tax on your withdrawal.
Which is the better plan? List your assumptions. (7.10)