1. An individual is considering contributing $4,500 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 41-years old and is in a 29 percent tax bracket. On either IRA she can earn 8 percent. When she retires at age 65, she believes she will be in a 18 percent tax bracket. Which type of IRA should she choose if she invests not only the $4,500 per year, but any tax savings due to the deductibility of her contributions in a taxable investment earning a pretax rate of 8 percent? She will withdraw all her money upon retirement and may owe taxes then, depending on the type of IRA chosen.

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To determine which type of IRA Traditional or Roth the individual should choose we need to compare t... View the full answer