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  1. Path: sparky!uunet!spool.mu.edu!agate!dog.ee.lbl.gov!csa3.lbl.gov!schindler
  2. From: schindler@csa3.lbl.gov
  3. Newsgroups: misc.invest
  4. Subject: Re: What good is a non-deductible IRA?
  5. Date: 29 Dec 1992 21:58 PST
  6. Organization: Lawrence Berkeley Laboratory - Berkeley, CA, USA
  7. Lines: 34
  8. Distribution: usa
  9. Message-ID: <29DEC199221584607@csa3.lbl.gov>
  10. References: <1hddvvINNa87@tamsun.tamu.edu> <ljuvr9INNofj@exodus.Eng.Sun.COM> <rlcarr.09ex@animato.network23.com>
  11. NNTP-Posting-Host: 128.3.254.198
  12. News-Software: VAX/VMS VNEWS 1.41    
  13.  
  14. >True.  However, assume you can invest and get an overall 8% return.
  15. >Also assume that you are in the 33% bracket.  So your marginal rate
  16. >is at least 33%, maybe higher depending on state/city.  So, that means
  17. >your aftertax return is only 5.36%.  An example...
  18. >$1000 invested for 15 years at 8% = $3320 for $2320 in earnings
  19. >$1000 invested for 15 years at 5.36% = $2234 for $1234 in earnings.
  20.  
  21. >Now tax away 43% (33% + 10% penalty) of $2320 = .57(2320) = $1322 after taxes
  22. >on the IRA distribution.  So even with the penalty, you come out better after
  23. >15 years.  If you can afford to leave the money in even longer, you do even
  24. >better.  After all, e^(.08*t) is always e^(0.0264*t) larger than e^(0.0536*t).
  25. >Eventually that difference will more than make up for the 10% penalty.  And
  26.  
  27. >Rich Carreiro                                  Home: (401)841-8514
  28.  
  29. To be fair, we should also include the 10% penalty on the principle if you
  30. withdraw it from the IRA.  Then your net is $900 principle + $1322 earnings
  31. = $2222 if you put the money into an IRA.  Compared with the $2234 in the
  32. taxable account, we see that even after 15 years you are better off NOT
  33. in the IRA if you must withdraw before 59.5 years old.  
  34.  
  35. |=======================================================================|
  36. | Aaron Schindler                                Schindler@csa.lbl.gov  |
  37. |                                                                       |
  38. | There are two times in a man's life when he should not speculate:     |
  39. | when he can't afford it, and when he can.        --Mark Twain         |
  40. |=======================================================================|
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