An individual is considering contributing $4,000 per year to either a traditional or a Roth IRA. Payments would begin in one year. If she uses the traditional IRA, her contributions would be fully deductible. She is 40-years old and is in a 28 percent tax bracket. On either IRA she can earn 7 percent. When she retires at age 65, she believes she will be in a 15 percent tax bracket. She invests not only the $4,000 per year, but any tax savings due to the deductibility of her contributions in a taxable investment earning a pretax rate of 7 percent. She will withdraw all her money upon retirement and may owe taxes then, depending on the type of IRA chosen.

An individual is considering contributing $4,000 per year to either a traditional or a Roth IRA. Payments would begin in one year. If she uses the traditional IRA, her contributions would be fully deductible. She is 40-years old and is in a 28 percent tax bracket. On either IRA she can earn 7 percent. When she retires at age 65, she believes she will be in a 15 percent tax bracket. She invests not only the $4,000 per year, but any tax savings due to the deductibility of her contributions in a taxable investment earning a pretax rate of 7 percent. She will withdraw all her money upon retirement and may owe taxes then, depending on the type of IRA chosen.

SWFT Individual Income Taxes

43rd Edition

ISBN:9780357391365

Author:YOUNG

Publisher:YOUNG

Chapter5: Gross Income: Exclusions

Section: Chapter Questions

Problem 43P

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