A taxpayer wants to invest the maximum allowed in his retirement account. He has come to you for advice as to whether he should contribute to a traditional deductible IRA or to 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. Be explicit about any assumptions you need to make when comparing the two alternative retirement accounts.
Answer to relevant QuestionsAssume the same facts presented in exercise 7 with the exception that now the taxpayer expects his tax rate to increase from its current 28% level to 35% when he retires in 40 years. Again, be explicit about any assumptions ...In comparing the deductible IRA with the Roth IRA, we assumed that any excess funds left after investing the maximum pretax dollars in a deductible IRA were invested in an SPDA. How would the comparison change if the excess ...What is the effect of dividend imputation on r*c, the required after corporate tax— but before shareholder level tax rate of return? What is the effect of dividend imputation on r*c as k (the percentage of dividends that ...Why might one group of investors prefer the corporate form, whereas another group of investors prefers the partnership form? With the Tax Reform Act of 1986, corporate tax rates fell from 46% in 1986 to 40% in 1987 and to 34% for income earned subsequent to 1987. Because the tax code allowed a 3 year carry back for net operating losses during this ...
Post your question