After tax retirement contributions

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Reference no: EM1375768

The Taxpayer Relief Act developed Roth IRA which permits you to make after tax retirement contributions of up to $2000 yearly and contributions are not tax deductible, but no taxes are paid on earnings. In contrast, contributions to IRAs are tax-deductible, but taxes will be paid on all future distributions. Consider an individual who is 5-years away from retirement and will need to withdraw all her retirement funds at that time. She has $2000 in pretax income to allocate each year to a retirement plan, faxes a fixed tax rate of 15 percent now as well as at retirement, and anticipates a stable 8 percent return on her investments. She can set up a Roth IRA for a one-time, up front fee of $10 or traditional IRA for free. Which should she choose?

Reference no: EM1375768

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