I:18-25 Roth IRA Versus Deductible IRA. Beth wants to contribute to either a traditional deductible IRA or a Roth IRA. However, she can afford to contribute only $5,400 after-tax dollars to a Roth IRA even though the maximum contribution is $6,000. Alternatively, she can contribute a comparable amount to a deductible IRA plus an outside investment if necessary.

(Remember that deductible IRA contributions are made with before-tax dollars and are limited to $6,000.) Beth’s current tax rate is 25%, and she expects her tax rate to remain at 25% throughout the investment period. In addition, she expects her IRA investment to earn a 10% BTROR, and she plans to withdraw the IRA accumulation in 30 years, at which time she will be over age 59 ½. Any outside investment will conform to the Current Model earning a 10% BTROR. Determine the after-tax accumulation from each IRA alternative.

Which of the two IRA types will give Beth the greater after-tax accumulation?