Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  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...

50.1K

Verified Solution

Question

Finance

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)?

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students