Retirement account by investing the funds in corporate bonds

Assignment Help Financial Accounting

Reference no: EM131217091

A taxpayer is about to receive a $1,000 bonus payment from his employer. He would like to put this bonus into a retirement account. He has come to you for advice as to whether he should put the $1,000 into a traditional deductible IRA or a Roth IRA account. You learn that he faces a current marginal tax rate of 28% and expects to face the same rate in 40 years, when he plans to withdraw the funds at age 70. He expects to earn a pretax rate of return of 10% in either retirement account by investing the funds in corporate bonds. Advise the taxpayer as to what he should do.

A. Roth IRA 1000(1+earnings rate)^40

B. Deductible IRA (1000/(1-tax rate) * (1+earnings rate)^40 * (1-tax rate)

Reference no: EM131217091

Questions Cloud

Tax rates and investment returns are constant over time : Suppose that the tax rate on personal income, tp, is equal to 40%; the corporate tax rate, tc, is equal to 35%; and the capital gains tax rate, tcg, is 20%. Also assume that the before-tax rate of return on investment to both the corporate and partne..

Employee counseling programs : Describe the typical activities included in employee counseling programs. Is there really a need for employee counseling

Plot the langevin function using various parameters : Computer problem. Plot the Langevin function using various parameters. For which values of H does one obtain saturation magnetization?

Equivalent of a short paper : Journal entries should be considered the equivalent of a short paper. You are to answer a question on a topic and even express your opinion.

Retirement account by investing the funds in corporate bonds : A taxpayer is about to receive a $1,000 bonus payment from his employer. He would like to put this bonus into a retirement account. He has come to you for advice as to whether he should put the $1,000 into a traditional deductible IRA or a Roth IRA a..

Which type of electrical steel was used as the core material : Pick an actual motor of your choice and find out (by analysis, by means of a data sheet, or by writing to the manufacturer) which type of electrical steel was used as the core material. Also, find out the core loss (often given in watts/I b).

Explain major short run functions for low-calorie : Analyze the major short run and long cost functions for the low-calorie, frozen microwaveable food company given the cost functions below.

The relative magnitude of the taxpayers current : Equation 3.9 indicates that the choice as to whether to convert from a deductible IRA into a Roth IRA when the taxpayer expects his future tax rate to decline depends on the relative magnitude of the taxpayer’s current and future tax rates t0 and tn,..

How the enron culture applied a constant pressure : What factors led to the development of the culture of profit before principle at Enron? Provide a detailed evaluation that demonstrates clear, insightful critical thinking - Create a personal code of ethics that will guide you in professional and p..

User Account

All Pages