An individual is considering contributing $4,000 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 40-years old and is in a 28 percent tax bracket. On either IRA she can earn 7 percent. When she retires at age 65,she believes she will be in a 15 percent tax bracket. Which type of IRA should she choose if she invests not only the $4,000 per year,but any tax savings due to the deductibility of her contributions in a taxable investment earning a pretax rate of 7 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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The Answer of An individual is considering contributing $4,000 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 40-years old and is in a 28 percent tax bracket. On either IRA she can earn 7 percent. When she retires at age 65,she believes she will be in a 15 percent tax bracket. Which type of IRA should she choose if she invests not only the $4,000 per year,but any tax savings due to the deductibility of her contributions in a taxable investment earning a pretax rate of 7 percent? She will withdraw all her money upon retirement and may owe taxes then,depending on the type of IRA chosen.

An Individual Is Considering Contributing $4,000 Per Year to Either