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That was probably not a good move. Look at it this way, in your situation your maximum risk was 10% (the penalty for early withdrawal, assuming you took 100% of the money out for that year).
You make a good point, something I probably didn't understand fully when I made my decision. The other mitigating (?) circumstance is that because I now have a 401K plan available at work (new this year), I have an additional $16,500 I can contribute (Roth or traditional), in addition to a SEP 401k that my wife has access to. This puts our total contribution limit into the $30k + range, which is enough "room" to get last years (deferred) contribution in with the same tax advantage, without really affecting how much I can/do contribute this year. I do, of course, lose the year opportunity of my money growing.
So while it still might have been the better choice to put it in last year, I don't think it makes too much of a difference. And, maybe I'm just rationalizing.
-s
I think the simplification that most people make is to assume that if you are in the 25% tax bracket then *all* of your income is taxed at that rate, when in reality it is only the marginal income that gets taxed at that rate.
Yes, I can't believe some people still believe this, but I see this time after time in those articles about taxation. I remember when Obama was running for president, you'd have quotes from "business owners" who claimed they made $250K (in sales, not in profits, so really they didn't) and that all of their income would soon be taxed at 36% or 39.6% because of Obama. These people are too idiotic to be successful business owners.
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I have read a lot of web articles on how to decide between a traditional and a Roth IRA. While there are many complexities, one of the big "rules of thumb" seems to be that if you expect to be in a higher tax bracket when you retire than you are currently, use a Roth, otherwise use a traditional. For example (plucked from a web page):
"Again, if the taxpayer were in the same tax bracket before and after retirement, there would be no benefit or advantage to either IRA."
This is a point I have considered many times, and one I have discussed with "knowledgeable" people, and have never had a satisfactory conclusion. Admittedly, my understanding of tax law is limited, but as I understand it, the marginal tax bracket is most important on the contribution side, and the average tax bracket (if that makes sense) is what matters on the distribution side. By way of example, if an individual can afford a $4000 contribution in pre-tax dollars, and is in the 25% marginal tax bracket, consider the two investment options.
1. Invest $4000 in a traditional IRA, with no taxes deducted.
2. Invest $4000 - $1000 (25%) in a Roth IRA.
When it comes time to take a distribution, assume the person is in the same 25% marginal tax bracket. For the traditional IRA, the first portion of their income (I presume) is taxed at 10% the next portion at 15%, and the rest is taxed at 25%. (this is, of course, assuming tax brackets stay the same). Compared to the Roth IRA which paid 25% tax on all contributions, the traditional IRA paid