Business, 18.09.2019 22:10 Homepage10

Suppose one of your clients is four years away from retirement and has only $2,500 in pretax income to devote to either a roth or traditional ira. the traditional ira permits investors to contribute the full $2,500 since contributions to these accounts are tax-deductible, but they must pay taxes on all future distributions. in contrast, contributions to a roth ira are not tax-deductible. for example, if a person’s tax rate is 25 percent, an investor is able to contribute only $1,875 after taxes; however, the earnings of a roth ira grow tax-free. your company has decided to waive the one-time set-up fee of $50 to open a roth ira; however, investors opening a traditional ira must pay the $50 set-up fee. assuming that your client anticipates that her tax rate will remain at 19 percent in retirement and will earn a stable 7 percent return on her investments, will she prefer a traditional or roth ira?

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Suppose one of your clients is four years away from retirement and has only $2,500 in pretax income...

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