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Jimmy wants to contribute either $5,500 (BT$) to a traditional deductible IRA, or $5,500 (AT$) to a Roth IRA. His current tax rate is 30% for ordinary income and 20% for capital gains. He expects his IRA investment to earn a 12% before-tax rate of return (BTROR), and he plans to withdraw the IRA accumulation in 25 years, at which time he will be over age 59 ½. If he contributes to a deductible IRA, he will invest the tax savings from the deduction in a non-dividend paying stock that he expects to grow at a 12% BTROR. Jimmy will sell the stock at the same time he withdraws the IRA accumulation.
1) Compare the two alternatives assuming that, at the time of the withdrawal, Jimmy's tax rate will be 30%for ordinary income and 20% for capital gains.
2) Compare the two alternatives assuming that, at the time of the withdrawal,Jimmy's tax rate will be 15% for ordinary income and 10% for capital gains.
Prepare a spreadsheet showing the year-by-year accumulations for each investment in each circumstance; show your work.
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Counter-point of this argument and express your opinion on this topic One to two paragraph and while in the discussion, read the point and counter-point which I have provided on this topic, then click on the forum in which you'd like to comment.
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