Taxable account versus traditional IRA. Tom Shilling expects to have $10,000 of taxable income to commit...

Taxable account versus traditional IRA.
Tom Shilling expects to have $10,000 of taxable income to commit to his retirement savings
each year for the next 30 years. His investments will be made at the end of the year. His tax rate
is 30% and his investments will earn 8% annually.
If Tom invests in a taxable account, his annual investment is reduced by his income taxes, and
his annual return on investments will also be reduced by 30%.
If tom invests in a traditional IRA, he pays no taxes on the $10,000 taxable income, and his
earnings compound at the pretax rate of return. However, in 30 years, all of his investment
balances are subject to the 30% tax rate.
A. Prepare a spreadsheet that shows the balance in the two accounts for the next 30 years.
B. After taxes, what is the advantage of the IRA over a taxable account, both in dollars and
as a percentage?

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ekkarill92 answered 1 year ago

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