Question: The difference between a Roth IRA and a conventional IRA is that in a Roth IRA taxes are paid on the income that is contributed

The difference between a Roth IRA and a conventional IRA is that in a Roth IRA taxes are paid on the income that is contributed but the withdrawals at retirement are tax-free. In a conventional IRA, however, the contributions reduce your taxable income, but the withdrawals at retirement are taxable. Try using the Excel spreadsheet introduced in the Appendix to answer these questions.
a. Which of these two types provides higher after-tax benefits?
b. Which provides better protection against tax rate uncertainty?

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a The answer depends on the assumptions made about the investors effective income tax rates for the period of accumulation and for the period of withd... View full answer

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