You have 6K of spare pre-tax income that you're looking to invest for the future....
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You have 6K of spare pre-tax income that you're looking to invest for the future. Today you are in a combined federal+state marginal tax bracket of 26%. You are anticipating that in 40 years your marginal tax bracket on your retirement income will be 16%, and marginal long term gains bracket will be 11%.
You decide to invest $5500 in a Traditional IRA, pay taxes on the remaining $500 and invest it in a taxable account. You expect to earn an average annual rate of return of 7.4%. For simplicity, assume it'll be composed entirely of capital appreciation, with no taxable interim cash flows.
How much will you have in 40 years after withdrawing from the IRA, and cashing in your taxable account?
Remember that upon withdrawal you'll pay regular income tax rate on the tIRA money, and long term capital gains on the gains in your taxable account..
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