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Client Information - Single person, age 24
- Annual Income of $85,000
Before the MoneyEdgeThe main goal of this client was to find out if it was better to invest in a non-retirement account, a traditional IRA, or a Roth IRA. The adviser ran a simple Taxable vs. Tax-Deferred vs. Tax-Free Calculator to help him determine which vehicle to use. The MoneyEdge Calculator showed them: - From the Retirement Plan Limits, they determined their income was higher than the allowable limit to get a tax-deduction from funding their traditional IRA but they were eligible to fund their Roth IRA.
- If they funded their IRA with the maximum of $5,000 each year and averaged a 10% return over a 41 year time horizon, the following results occurred:
Summary at Age 65:
| Fully Taxable (taxed at the end of each year) | Tax-Deferred (taxed when withdrawn) | Tax-Free (at withdrawal) |
|---|
| Investment balance | $5,000.00 | $5,000.00 | $5,000.00 | | Annual contributions | $5,000.00 | $5,000.00 | $5,000.00 | | Number of years to project | 41 | 41 | 41 | | Before-tax return | 10% | 10% | 10% | | Federal Tax Rate | 25% | 25% | N/A | | After-tax return | 7.50% | N/A | N/A | | Future value | $1,323,491.58 | $2,688,184.96 | $2,688,184.96 | | Future value (after-tax) | $1,323,491.58 | $2,068,638.72 | $2,688,184.96 | After the MoneyEdgeThis client was much better off funding the Roth IRA each year since it gave them the greatest amount of money after taxes. Instead of running a full-fledged Advanced MoneyEdge report, this client was able to be helped by running a simple calculator, all part of the MoneyEdge system.
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