Equation 3.9 indicates that the choice as to whether to convert from a deductible IRA into a Roth IRA when the taxpayer expects his future tax rate to decline depends on the relative magnitude of the taxpayer€™s current and future tax rates t0 and tn, the holding period n, and the pretax rate of return expected R to be earned on plan assets. (Equation 3.9 assumes that any taxes due on conversion are paid in the conversion year from non-converted funds that would otherwise be invested in an SPDA.) Assume V = $ 50,000 and t0 = .40. Complete the following spreadsheet, first assuming that R = 10%. Then repeat the spreadsheet for R = 5% and R = 15%.

Interpret the results of your analysis. How does the conversion decision vary as a function of the pretax rate of return, holding period, and relative magnitudes of tax rates?

Holding perod 5 years 10 years 20 years 30 years 40