In: Accounting
Taxes are probably the most important aspect of personal financial planning. Compare, contrast and comment on the lifetime financial effect of not making an IRA contribution, a traditional IRA contribution and a Roth IRA contribution. Assume a 50% tax rate, 50 years and 15% compounding.
GIVEN INFORMATION:
Taxes are probably the most important aspect of personal financial planning.
Compare, contrast and comment on the lifetime financial effect of not making an IRA contribution, a traditional IRA contribution and a Roth IRA contribution
REQUIRED:
Assume a 50% tax rate, 50 years and 15% compounding.
SOLUTION:
IF NOT CONTRIBUTED:
Let amount be = 3000$
After tax = 1500$
Compounding rate = 15%
Tax at the rate = 50%
Amount available after 50 years = 1,625,486$
Initially amount invested after = - 75,000$
Annual earnings = 1,550,486$
Tax on earning @ 50 % = 775,243$
Therefore Net Earning Post Tax = 775,243$
UNDER TRADITIONAL METHOD:
Amount available for contribution = 3000$
Amount after 50 years = 3,250,972$
Amount Deposit = - 150,000$
(3000 * 50)
Annual earning = 3,100,972 $
Tax on earning @ 50% = 1,550,486$
Therefore Net Earning Post Tax = 1,550,486,$
" TRADITIONAL METHOD SAVINGS = 24901119.71 "
ROTH RIA METHOD :
Ira total retirement = 24,901,121$
Taxable savings account = 1,556,159$
Differnce = 23,344,962$
CONCLUSION:
" Reserve funds in conventional technique is more than Roth strategy, it's smarter to go for customary technique , rather than Roth technique "