An Individual Is Considering Contributing $4,000 Per Year to Either

question 21

Essay

An individual is considering contributing $4,000 per year to either a traditional or a Roth IRA. Payments would begin in one year. If she uses the traditional IRA,her contributions would be fully deductible. She is 40-years old and is in a 28 percent tax bracket. On either IRA she can earn 7 percent. When she retires at age 65,she believes she will be in a 28 percent tax bracket. Which type of IRA should she choose if she invests not only the $4,000 per year,but any tax savings due to the deductibility of her contributions in a taxable investment earning a pretax rate of 7 percent? She will withdraw all her money upon retirement and may owe taxes then,depending on the type of IRA chosen.

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Definitions:

Cerebellum

A structure located at the back of the brain, vital for coordinating movement and balance.

Explicit Memories

Memories that can be consciously recalled, such as facts and knowledge or personal experiences.

Prefrontal Cortex

The prefrontal cortex is a part of the brain located at the front of the frontal lobe, important in complex behaviors such as decision making, executive functions, and moderating social behaviour.

Temporal Lobe

A region of the brain responsible for processing auditory information and is involved in memory and emotion.