Elijah James is in his early 30s and is thinking about opening an IRA. He can't decide whether to open a traditional/deductible IRA or a Roth IRA, so he turns to you for help. To support your explanation, you decide to run some comparative numbers on the two types of accounts; for starters, use a 35-year period to show Elijah what contributions of $5,000 per year will amount to (after 35 years) if he can earn, say, 8 percent on his money. Round your answers to the nearest dollar. 1A. traditional IRA $ 1B. Roth IRA $_ Will the type of account he opens have any impact on this amount? Select: Yes or No 2. Assuming that Elijah is in the 25 percent tax bracket (and will remain there for the next 35 years), determine the annual and total (over 35 years) tax savings he'll enjoy from the $5,000-a-year contributions to his IRA. Contrast the (annual and total) tax savings he'd generate from a traditional IRA with those from a Roth IRA. If an answer is zero, enter "0". Round your answers to the nearest dollar. Traditional IRA annual tax savings: $ Roth IRA annual tax savings: $ Traditional IRA total tax savings: $ Roth IRA total tax savings: $ 3. Now, fast-forward 35 years. Given the size of Elijah's account in 35 years (as computed in part a), assume that he takes it all out in one lump sum. If he's now in the 25% tax bracket, how much will he have, after taxes, with a traditional IRA as compared with a Roth IRA? Round your answers to the nearest dollar. Traditional IRA: $ Roth IRA: $ Based on the numbers you have computed as well as any other factors, what kind of IRA would you recommend to Elijah? Maximum allowable annual contributions to IRAs are $5,500 for 2016 for those under 50 and $6,500 for those over 50. Select: Roth IRA or Traditional Would knowing that maximum contributions are scheduled to increase to $7,000 per year make any difference in your analysis? Select: Yes or No

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter14: Planning For Retirement

Section: Chapter Questions

Problem 8FPE

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Elijah James is in his early 30s and is thinking about opening an IRA. He can't decide whether to open a traditional/deductible IRA or a Roth IRA, so he turns to you for help.

To support your explanation, you decide to run some comparative numbers on the two types of accounts; for starters, use a 35-year period to show Elijah what contributions of $5,000 per year will amount to (after 35 years) if he can earn, say, 8 percent on his money. Round your answers to the nearest dollar.

1A. traditional IRA $______
1B. Roth IRA $_______

Will the type of account he opens have any impact on this amount?

Select: Yes or No

2. Assuming that Elijah is in the 25 percent tax bracket (and will remain there for the next 35 years), determine the annual and total (over 35 years) tax savings he'll enjoy from the $5,000-a-year contributions to his IRA. Contrast the (annual and total) tax savings he'd generate from a traditional IRA with those from a Roth IRA. If an answer is zero, enter "0". Round your answers to the nearest dollar.

Traditional IRA annual tax savings:	$
Roth IRA annual tax savings:	$
Traditional IRA total tax savings:	$
Roth IRA total tax savings:	$

3. Now, fast-forward 35 years. Given the size of Elijah's account in 35 years (as computed in part a), assume that he takes it all out in one lump sum. If he's now in the 25% tax bracket, how much will he have, after taxes, with a traditional IRA as compared with a Roth IRA? Round your answers to the nearest dollar.

Traditional IRA:	$
Roth IRA:	$

Based on the numbers you have computed as well as any other factors, what kind of IRA would you recommend to Elijah? Maximum allowable annual contributions to IRAs are $5,500 for 2016 for those under 50 and $6,500 for those over 50.

Select: Roth IRA or Traditional

Would knowing that maximum contributions are scheduled to increase to $7,000 per year make any difference in your analysis?

Select: Yes or No

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