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  3. a 25 year old taxpayer has $1,400 of after-tax inc

A 25 year old taxpayer has $1,400 of after-tax income that she wishes to invest...

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Accounting

A 25 year old taxpayer has $1,400 of after-tax income that she wishes to invest for 10 years. She is trying to decide between a deductible IRA invested in corporate bonds and an after-tax investment in the same corporate bonds. Her tax rate is 30% for the entire period and she will have to pay an additional 10% tax penalty (40% in total) if she takes an IRA distribution before age 59.5. The returns on the corporate bonds would be 10% with either investment. She would invest the tax savings from the IRA into the IRA investment (principal IRA > principal non-IRA).

What is the difference between the after-tax returns from the IRA versus the non-IRA (AT return IRA - AT return non-IRA)? Please answer in dollars and cents without the "$" and use 5/4 rounding.

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