Solution-Will she prefer a traditional or roth ira

Will she prefer a traditional or roth ira

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Reference no: EM13910211

Suppose one of your clients is four years away from retirement and has only $2,500 in pretax income to devote to either Roth or traditional IRA. The traditional IRA permits investors to contribute the full $2,500 since contributions to these accounts are tax-deductible, but they must pay taxes on all future distributions. In contrast, contributions to a Roth IRA are no tax-deductible. For example, if a person's tax rate is 25 percent, an investor is able to contribute only $1875 after taxes; however, the earnings of a Roth IRA grow tax free.

Your company has decided to waive the one time set up fee of $50 to open a Roth IRA; however, investors opening traditional IRA must pay the $50 set up fee. Assuming that your client anticipates that her tax rate will remain at 19 percent in retirement and will earn stable 7 percent return on her investment, will she prefer a traditional or Roth IRA?

Reference no: EM13910211

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Will she prefer a traditional or roth ira

Reference no: EM13910211

Reference no: EM13910211

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