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

question 47

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% tax bracket. On either IRA she can earn 7%. When she retires at age 65 she believes she will be in a 15% 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%? She will withdraw all her money upon retirement and may owe taxes then, depending on the type of IRA chosen.

---

Definitions:

Neural Information

Data processed and transmitted by the nervous system, particularly the brain, to enable bodily functions and cognitive processes.

Sensory Stimuli

External or internal inputs that are perceived by the sensory organs, leading to various forms of responses or reactions from an organism.

Coffee Aroma

The scent produced by coffee, often described as rich, warm, and inviting; this aroma is credited with providing psychological comfort and increasing alertness.

Sensory Receptor Cells

Specialized cells that detect and respond to specific stimuli from the external or internal environment, converting them into electrical impulses.