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|Subject: Re: nondeductible IRA - Useless?||Date: 12/22/2004 4:13 PM|
|Author: ziggy29||Number: 43681 of 77564|
>> The taxable event in the TIRA occurred in year 20 for a tax bill of $73,219 with an account value of $466,096, leaving a balance of $392,877. <<
This I agree with.
>> The taxable event in the TIRA occurred in year 20 for a tax bill of $73,219 with an account value of $466,096, leaving a balance of $392,877. The first tax bill in the taxable account is $14,985 paid in year 11. The second tax bill is $30,257 paid in year 20. The account value in year 20 is $401,615, leaving a balance of $371,358. So although the total tax bill is lower in the taxable account by about $28K, the compounded returns on the first tax bill amount of $14,985 over 10 years result in $21,500 more after-tax cash in the TIRA. <<
When I do this, I show that $100K becomes $215,892 after 10 years. Of this $115,892 is taxed at 15%. After 10 years, the tax paid is $17,384 and the after-tax balance is $198,509.
Compounding $198,509 at 8% for 10 years, you end up with $428,565. Of that, $230,056 is taxable ($428,565 - $198,509 already taxed). The tax on this is 15% of $230,056, or about $34,508. Subtract this from your original $428,565 balance and you get about $394,057. By my calculations in Excel, the taxable account with one taxable event after Year 10 and another taxable event after Year 20 comes out $1,180 ahead.
Note that my original statement which you took issue with is pretty close to a boundary case.
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