Calculation Question
The difference between a Roth IRA and a traditional IRA is that in a Roth IRA taxes are paid on the Income that is contributed, but the withdrawals at retirement are tax-free. Ina traditional IRA, however, the contributions reduce your taxable income, bot the withdrawals at retirement are taxable_ Assume you plan to devote $5,000 to retirement savings in each year. You will retire in 30 years and expect to live for an addlbonal 20 years after retirement
a. Assume the before-tax interest rate is 5% What will be your after-tax 20-year retirement consumption stream if you choose to save n a traditional IRA? Assume your tax rate is fixed at 30%
b. What will be your 20-year retirement consumption stream if you choose to save Ina Roth IRA?
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