Question: Suppose a taxpayer when 25 years old made one tax

Suppose a taxpayer, when 25 years old, made one tax deductible $ 2,000 contribution of her after tax salary to a deductible IRA. Her investment (taxable corporate bonds) earned a 12% annual return, and she liquidates the investment 10 years later when she retires. Her tax rate is 35%, but she must pay an additional 10% excise tax because she liquidates the IRA before she reaches the age 59.5.
a. After taxes, how much cash does she have when she liquidates the IRA?
b. Was it a mistake for the taxpayer to have set up an IRA? What would she have earned had she invested her after tax salary in the taxable corporate bonds directly instead of through an IRA?

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  • CreatedAugust 06, 2015
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