Compare Roth and Traditional IRAs through the tax timing: test your skills
The difference comes down to one question: will your tax rate be higher now or in retirement? Answer each question to see the explanation; your score appears at the end.
This test checks that you can
- Compare tax now with tax later
- See why equal rates give equal results
- Value having both
- Practice
1. Roth tends to win when your tax rate is…
- Practice
2. If your rate is the same now and later…
- Practice
3. What matters most?
- Key idea
4. Which statement best explains "It is a bet on your tax rate"?
- Key idea
5. Which statement best explains "Equal rates, equal outcome"?
- Key idea
6. Which statement best explains "Contributing beats choosing"?
- Action plan
7. In the action plan, which step comes first?
- Mistake to avoid
8. Which of these is a mistake this lesson warns against?
- Mistake to avoid
9. Which of these is a mistake this lesson warns against?
$1,000 of earnings grows 3×. Tax now 24%, later 12%. Which account ends with more?
Show the answer
Traditional: $2,640 vs Roth $2,280
Traditional: $3,000 × 0.88 = $2,640. Roth: $760 × 3 = $2,280.
Write down your current tax bracket and whether you expect it to be higher or lower in retirement.
More tests in this bootcamp
- Understand your 401(k) and employer match
- Open the idea of an IRA: account first, investments inside
- Compare Roth and Traditional IRAs through the tax timing
- Understand the backdoor Roth IRA and its tax pitfalls
- Understand an HSA’s tax benefits and receipt records
- Explore how claiming age changes Social Security benefits
- Use the 4% rule as a starting point, with its limits
- Plan for required minimum distributions
- Check the costs and commitments of early retirement withdrawals
- Final exam: Retirement accounts