A Roth IRA enables an individual to invest after-tax dollars during the accumulation phase of a retirement plan. The money is then income tax free when it is withdrawn during retirement. A tax-deductible IRA, on the other hand, provides an upfront tax deduction for the annual contribution, but it then requires income taxes to be paid on all future distributions. A basic assumption as to which plan is more beneficial concerns the current income tax rates versus their projected rates in the future. To illustrate suppose that $1,400 is available to invest at the end of each year or 19 years. The income tax rate now and into the foreseeable future is 29%, so $1 400 1-0 29 -$994 is invested annually into the Roth IRA. However $1,400 per year can be invested into a tax-deductible IRA. Money invested under either plan will be deposited into a mutual fund eaming 10% per year, and all accumulated money will be withdrawn as a lumpsum at the end of year 19 a. Which plan is better if future distributions of the traditional (tax-free) IRA are taxed at an income tax rate of 29%? b. Which plan is better if the future income tax rate at retirement (end of year 19) is 32%? Discrete Compounding:J-10% Single Payment Uniform Series Sinking Fund Factor TO Find A GivenF Capital Recovery Factor TO Find A Given P Compound Amount Compound Amount Factor TO Find F GivenA Present Present Worth Factor TO Find P GivenA Factor Worth Factor To Find F GivenP To Find P GivenF 1.0000 0.4762 0.3021 0.2155 0.1638 0.1296 1.1000 0.5762 0.4021 0.3155 0.2638 0.2296 0.2054 0.1874 0.1736 0.1627 0.1540 0.1468 0.1408 0.1357 1.1000 1.2100 1.3310 1.0000 2.1000 3.3100 1 2 0.9091 0.8264 0.7513 0.6830 0.6209 0.5645 0.5132 0.4665 0.4241 0.3855 0.3505 0.3186 0.2897 0.2633 0.2394 0.9091 1.7355 2.4869 3.1699 3.7908 4.3553 4 5 6.1051 7.7156 9.4872 11.4359 13.5795 15.9374 18.5312 21.3843 24.5227 27.9750 31.7725 1.7716 1.9487 2.1436 2.3579 2.5937 2.8531 3.1384 3.4523 3.7975 4.1772 7 8 0.0874 0.0736 0.0627 0.0540 0.0468 0.0408 0.0357 0.0315 5.3349 5.7590 6.4951 6.8137 7.1034 7.3667 7.6061 879556063217349 741975421063210 879556063217349 741975421063210 764967527092188 311 220 80235678904 788888888999999 924 789 04688 4424 92900 4059 7721057031 9499522377 95700 51204 4128 5051741988 3445567789 1247 689561875336175 779385211275238 197643210953210 74435 49290 34059 84128 059952337 549570049 95512045 50517419 07852 112471 455667889 678901234505050 111122222233445