Procedure to determine the optimal Roth IRA versus deductible IRA allocation

We offer a procedure to guide the Roth IRA versus deductible IRA (RVD) allocation decision. We require users to input 10 values to generate outputs that include contribution and withdrawal tax rates; maximum gain; and, optimal amount to allocate between the two major IRA types. By being at their optimal RVD allocation, we find that a modest earning couple can achieve a lifetime wealth gain amounting to about $180,000 in today’s dollars. We provide figures and tables illustrating RVD outcomes when there are changes in key variables such as salary match, adjusted gross income, portfolio returns, and withdrawal years.