Do I understand this right? Roth vs. Traditional IRA

Paying for College
1

<p>Trying to consider all the pros and cons regarding the two IRA choices.......</p>

<p>If I understand it right, whether we choose to go with a Roth or a traditional IRA, the only difference to our EFC will be that caused by the difference in taxes paid, right? </p>

<p>If we max out our IRA contributions, with either type of IRA our income (before taxes are calculated in) will be the same, right? </p>

<p>So if we go with a Roth IRA, our EFC will be slightly lower because we'll pay more taxes? </p>

<p>The traditional IRA will reduce our AGI, but the contributions are wholly re-added to our income. Since our taxes will be lower, the AAI will be higher and the result will be a slightly higher EFC. </p>

<p>Is that it in a nutshell? </p>

<p>We can afford the higher taxes, so it seems for FA purposes, AND our long term financial strategy, the Roth is the way to go, right? </p>

<p>My ONLY hesitation is that some scholarships are asking for our AGI, which would make daughter less competitive for need based aid if we go the Roth IRA route.</p>

2

<p>Yup. That’s it.</p>

<p>Unless you have some particular evidence that the difference in your AGI will actually affect the scholarships, I’d go with the Roth. For most people it is a better long-range tool.</p>