So we have this:
- Contributions to traditional IRA: Pre-tax
- Distributions from traditional IRA: Taxed at the time of distribution
- Contributions to Roth IRA: Post-tax
- Growth and distributions (qualifying) from Roth IRA: Tax-free
Suppose I'm young (25), single and earning 100k now, but I know that in the not-too-distant future (5-10 years out), I will be in a low U.S. income bracket — possibly either grad school, earning 24k/year or working abroad with foreign taxable income that's under the IRS allowance. Would it make sense for me to contribute to traditional IRA (even though I'm eligible for Roth) and make rollover distributions to a Roth IRA in the future when I'm in a low income bracket?
My reasoning is that if I contribute to Roth now, I pay (say) 25% tax on 5.5k, but if I contribute to traditional and do a rollover when the income is low, I can lower my current taxable income and pay only, say, 15% or whatever is the rate at the 24k + 5.5k bracket. Plus, I might even be in a state w/ no income taxes (currently in CA).