Question

2b) Clint Crandall is 42 and is thinking about opening an IRA. He can't decide whether to open a traditional/deductible IRA or a Roth IRA, so he turns to you for help. You have already computed the type of account with 25yr period to show a $4,000 pre-tax annual contribution earning 10% on his money while being in the 28% percent tax bracket the entire 25yrs. Possible outstanding balance is $436,727.04 Answer B with the information provided.

b) Now, fast-forward 25 years. Given the size of Clint's account in 25 years (as computed in the top), assume he takes it all out in one lump sum. If he's now in the 30% tax bracket, how much will he have, after taxes, with a traditional IRA as compared with a Roth IRA? Comment your findings and determine what kind of IRA would you recommend based on the factors (non quantitative factors) than the numbers you have computed.

Answer #1

In traditional IRA, tax is only levied when you actually withdraws the money. It is not applied while you are saving. While in case of Roth IRA, even when you withdraw the money, you will not be taxed.

So both the options allows you to save money tax free, but traditional IRA in the end hamper you with tax liability which is not the case with Roth IRA.

Calculations:

In my openion, i would recommend Roth IRA, since you will not have the tax burden in the end on your savings

Chapter 14
Financial Planning Exercise 12
Deciding between traditional and Roth IRAs
Clint Crandall is in his early 30s and is thinking about opening
an IRA. He can't decide whether to open a traditional/deductible
IRA or a Roth IRA, so he turns to you for help.
To support your explanation, you decide to run some
comparative numbers on the two types of accounts; for
starters, use a 30-year period to show Clint what contributions of
$5,000 per year will amount...

George (age 42 at year-end) has been contributing to a
traditional IRA for years (all deductible contributions) and his
IRA is now worth $31,800. He is planning on transferring (or
rolling over) the entire balance into a Roth IRA account. George’s
marginal tax rate is 24 percent. (Leave no answer blank.
Enter zero if applicable. Round your intermediate calculations and
final answers to the nearest whole dollar amount.)
a. What are the tax consequences to George if
he takes $31,800...

Question 11
Even if you have opened and contributed to a traditional or Roth
IRA in the past, you can convert it (under specified conditions)
into the other type of IRA. Which of these types of conversions is
by far the more common:
From traditional to Roth
From Roth to traditional
Question 12
If you expect not to spend the contents of your IRA during your
lifetime and would like to leave the money to your children, you
should contribute...

Ty (single) would like to make a contribution to a Roth. He is
25 years old. His AGI is $200,000. He is an active participant in a
retirement plan at work. This will be his first time to make a
contribution to a Roth or Traditional IRA. What can you
advise him?
a.
You are over the phase-out ranges for contributions to either a
Roth or a Traditional IRA. Congratulations on the high
income!
b.
Yes, you are eligible to make...

Show all calculations. You must use the factors from the
tables
a. Steve Allen invested $12,000 today in a fund that earns 8%
interest. If the interest compounds
semiannually, what amount will the
investment grow to in 6 years?
Answer $_____________________
b. A machine is purchased by making 6 payments of $8,000 each at
the beginning of each year (starting at
the time of the purchase). Assuming an annual interest rate of 10%,
at what cost should the machine be...

Delta airlines case study
Global strategy. Describe the current global
strategy and provide evidence about how the firms resources
incompetencies support the given pressures regarding costs and
local responsiveness. Describe entry modes have they usually used,
and whether they are appropriate for the given strategy. Any key
issues in their global strategy?
casestudy:
Atlanta, June 17, 2014. Sea of Delta employees and their
families swarmed between food trucks, amusement park booths, and
entertainment venues that were scattered throughout what would...

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