Explain the taxpayer relief act

Assignment Help Business Law and Ethics

Reference no: EM131778242

Question: The Taxpayer Relief Act of 1997 created the Roth IRA, which permits qualifying individuals to make after-tax retirement contributions of up to $2,000 annually. Contributions to a Roth IRA are not tax-deductible, but no taxes are paid on earnings generated from a Roth IRA. In contrast, contributions made to traditional IRAs are tax-deductible, but individuals will pay taxes on all future distributions. In short, investors using the Roth IRA make contributions that have already been taxed and have earnings that grow tax-free, while those using the traditional IRAs defer taxes until funds are withdrawn. Consider an individual who is five years away from retirement and will need to withdraw all her retirement funds at that time. She has $2,000 in pretax income to allocate each year to a retirement plan, faces 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 she can set up a traditional IRA for free. Which option should she choose and why? Show calculations.

Reference no: EM131778242

Questions Cloud

Ancsa unrealized-our lives are not measured in dollars : The following excerpt is from an article by James Allaway, a professor and expert on sustainable economic development, and Byron Mallett

What is the net amount to be paid to the employee : What is the net amount to be paid to the employee - what amount in September would Excom debit Product Warranty Expense?

Find the company total expense related to january payroll : Jones Corporation pays its employees monthly. Using the information above, the company's total expense related to the January payroll is

Changing social and political landscape : Include the role of key personalities in the changing social and political landscape.

Explain the taxpayer relief act : The Taxpayer Relief Act of 1997 created the Roth IRA, which permits qualifying individuals to make after-tax retirement contributions of up to $2,000 annually.

How did shawn and justin describe the military culture : How did Shawn and Justin describe the military culture? Provide examples. Where do you think Justin's turning point occurred and what precipitated it?

What is perception of the visual argument : What is your perception of the visual argument? Describe the intent of the visual?

What amount should blaine report for pension expense : Blaine Inc. shows the following data relating to its pension plan for 2011: What amount should Blaine report for pension expense in 2011

What function does eurydice serve : What function does eurydice serve? how deeply do we feel about her fate?

User Account

All Pages