Cooper Can Invest $10,000 After- Tax Dollars in a Taxable

question 1016

Essay

Cooper can invest $10,000 after- tax dollars in a taxable bond either outside or inside a traditional nondeductible IRA. He will hold the investment for ten years. The bond yields 6% before taxes and Cooper's marginal tax rate is 33%. If he invests directly in the bond, he will withdraw an amount of interest each year sufficient to pay taxes and leave the remaining interest in the investment. What are the after- tax accumulations in the bond and in the IRA? Cooper will not be subject to the 10% penalty tax when the IRA withdrawal occurs.

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Definitions:

Otalgia

Pain in the ear; earache.

Otitis

Inflammation of the ear, typically classified by location such as otitis media (middle ear) or otitis externa (outer ear).

Mastoiditis

An infection of the mastoid bone of the skull, often a complication of middle ear infection.

Perilymph

The fluid that fills the space between the membranous labyrinth and the bony labyrinth of the inner ear.