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% tax bracket. On either IRA she can earn 7%. When she retires at age 65 she believes she will be in a 15% 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%? She will withdraw all her money upon retirement and may owe taxes then, depending on the type of IRA chosen.

Question

Quizplus · Accepted Answer

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% tax bracket. On either IRA she can earn 7%. When she retires at age 65 she believes she will be in a 15% 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%? 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