T9-Chp-15-1A-Retirement-Example-200

T9-Chp-15-1A-Retirement-Example-200 - Chapter 15...

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1 Chapter 15 Entity-Choice-Other- Considerations- Retirement Computations Howard Godfrey, Ph.D., CPA UNC Charlotte Copyright © 2008, Dr. Howard Godfrey Edited Dec. 3, 2008. T8-Chp-15-1A-Retirement Example-2008
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The first few slides compare the results of saving with: (1) after-tax dollars and (2) before-tax dollars .
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In Option no. 2 , the amount saved in year -1 is tax sheltered . This is done with regular IRA, 401(k), etc. In the first version, neither Option 1, nor Option 2 involves earning income that is taxed each year. In a later slide, we show the disadvantage of having earnings on the fund reduced each year by income taxes.
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Retirement Saving Option 1 Salary $100,000 Savings Adjusted Gross Income $100,000 Ded. & Exemptions ($20,000) Taxable income $80,000
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Retirement Saving Option 1 Salary $100,000 Savings Adjusted Gross Income $100,000 Ded. & Exemptions ($20,000) Taxable income $80,000 Income tax rate 40% Income Tax ($32,000) Remainder $48,000 Invest in Savings - Year-1 ($6,000) Net $42,000
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Retirement Saving Option 1 Option 2 Salary $100,000 $100,000 Savings- Year-1 (10,000) AGI $100,000 $90,000 Ded. & Exemptions ($20,000) ($20,000) Taxable income $80,000 $70,000 Income tax rate
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