Module 8d: Traditional & Roth Examples
- Abby, age 25, is single and has no retirement plan at work. She has an adjusted gross income of
$39,000. Abby wants to find out whether a Roth or a traditional IRAL will provide the most retirement income.
Abby wants to retire when she is 67 and begin using the funds in her IRA. She expects to make
withdrawls until she is 87. She is in the 28% tax bracket and expects she will be in the 15%
bracket during retirement. She would like an 8% rate of return on her investments. She plans to
contribute $4,000 each year.
Question: By comparing IRAs, which IRA makes the most sense for her?
- Mike, age 27, is self-employed and has no retirement plan. Sandy, age 38, works for a publishing
company and has a defined-benefit plan. Mike and Sandy's adjusted gross income is $62,000.
They want to retire when they are 62 and begin withdrawing from their IRA. They expect to live to age
85. Mike and Sandy would like to earn 9% on their investments.
Question: Which IRA makes the most sense for Mike and Sandy?
- Abby used several calculators on the Internet and learned that she would have more income
in retirement if she contributed to a Roth IRA instead of a traditional IRA.
- Mike and Sandy used several calculators on the Internet. They decided that the Roth IRA
would be more beneficial.
If you want to make some comparisons for yourself, here are some calculators that you might like
Traditional vs. Roth Calculator
(Source: 360 degrees of Financial Literacy)
Module 8 - Module 8a | Module 8b | Module 8c | Module 8d | Module 8e