Whether to make further investments into a traditional IRA and tax-advantaged employer plan accounts versus investing in Roth IRA and tax-advantaged employer plan retirement accounts is sometimes a confusing decision.

The choice on the alternatives happens to be one of the most complex decisions of do-it-yourself financial planning. A lot of personal finance issues can decide whether a traditional tax-advantaged employer plan or IRA account contribution versus a “Roth” tax-advantaged employer plan or IRA account contribution decision would be best.

If analyzed properly, the majority of people would find that making investments into a regular IRA or tax-advantaged employer plan accounts is the best decision, when those deposits would be deductible against this year’s income taxes.

The trade-offs are complex. Back-of-the-envelope calculations are not able to model the many important personal financial factors. The choice is not only about tax rate changes. Instead, the decision needs a fully personalized personal finance projection and valuation of a person’s lifetime expenses, debts, net assets, and taxes.

(Look here for a comprehensive Roth IRA investment calculator that fully automates this regular IRA or tax-advantaged employer plan account versus investing in Roth IRA or tax-advantaged employer plan retirement account financial projection.)

Whether a family will consume less and save enough to invest efficiently over a lifetime dominates the Roth retirement plan versus the “deductible against this years income taxes” regular retirement account additional investment decision.

If a person cannot make enough money, does not control consumption to save a lot, cannot strictly control investment costs, and/or does not build up a sufficiently substantial investment asset portfolio, then that person won’t be in high income tax rates when retired — whether or not federal and state income tax brackets have moved up or down by retirement. If an investor does not have sufficiently large income and assets when retired, then the current tax savings an investor will get from choosing a traditional retirement account additional investment would work out to be much more financially favorable over a life cycle.

Note: This discussion ONLY focuses on personal financial circumstances where an investor has the choice of making a “deductible against current income taxes” regular IRA or 401k additional investment versus a currently “not deductible against current income taxes” Roth IRA or 401k additional investment. If you cannot get a deduction this year but can make a Roth contribution, then the Roth deposit is best.

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