Question
Suppose one of your clients is four years away from retirement and has only $1,500 in pre-tax income to devote to either a Roth or
Suppose one of your clients is four years away from retirement and has only $1,500 in pre-tax income to devote to either a Roth or traditional IRA. The traditional IRA permits investors to contribute the full $1,500 since contributions to these accounts are tax-deductible, but they must pay taxes on all distributions when they retire. In contrast, contributions to a Roth IRA are not tax deductible, meaning that at a tax rate of 25%, an investor is able to contribute only $1,125 after taxes; however, the earnings of a Roth IRA grow tax-free. Your company has decided to waive the one-time set-up fee of $25 to open a Roth IRA; however, investors opening a traditional IRA must pay the $25 set-up fee. Assuming your client anticipates that her tax rate will remain at 17 percent in retirement and will earn a stable 8 percent return on her investments, will she prefer a traditional or Roth IRA.
Please explain with details about formulas need to be used with out spreadsheets
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