Do I expect my tax rate in retirement to be higher lower or the same in retirement?
This is a key question.
The prescription from this, is that if you expect your tax rate to be lower at the time of withdrawal (presumably in retirement), then you defer the tax until that time by selecting to contribute to a traditional IRA.
Now that the contribution has been made, most people figure their decision is over and done with, but that is not a best practice.
Traditional IRAs can be converted to Roth IRAs at just about any time (there are some limits which are not relevant to this point). By doing so, the an initial Traditional IRA decision could be reversed (presumably in a different tax year) due to a change in circumstances.
As an example (and on a personal note, as an entrepreneur), I found myself expecting a large loss in one of my businesses in 2011. I normally have some significant deductions on my 1040 (from such things as my home mortgage) and I didn’t want to waste them. So I converted an IRA to a Roth before year end and took on lots of additional taxable income. My total tax for doing so turned out to be less than 2% of the converted amount.
Please consult your financial and/or tax advisor before taking any action.