Business Essentials, 12/e

Assumptions:
Initial contribution and earnings average 10 percent growth annually.
Initial contribution and earnings remain invested for 40 years.
Income tax rate is 30 percent.	Traditional IRA	Roth IRA
Initial cash contribution to IRA	$3,000	$3,000
Income tax paid initially: $4,285 income x 30% tax rate = $1,285 tax	0	1,285
Total initial cash outlay	$3,000	$4,285
Accumulated earnings (40 years)	$132,774	$132,774
Initial contribution	+ 3000	+ 3000
Total available for distribution after 40 years	= 135774	= 135774
Income tax at time of distribution	- 40732	0
After-tax distribution (cash)	= $95,042	= $135,774