IRAs after the Tax Reform Act of 1986: to contribute or not to contribute
Article Abstract:
The advantages of individual retirement accounts (IRAs) for persons likely to need the funds before retirement have been eroded by the Tax Reform Act of 1986. Changes primarily affect married people with adjusted gross incomes of $40,000 per couple or $25,000 per individual, if either one is an active participant in a retirement plan sponsored by an employer. IRA withdrawal rules are virtually unchanged, but tax treatment of withdrawals merits consideration when there are both deductible and nondeductible contributions involved. Factors influencing the taxpayer's decision as to whether or not to make an IRA contribution include: past contributions, the chance of needing the funds before retirement, expected return rates, current marginal tax rates, expected future marginal tax rates, and whether or not the contribution is tax deductible.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1987
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Education IRA vs. tax credits: a multiple-choice question
Article Abstract:
Taxpayers should compare the key aspects of education individual retirement accounts (IRAs), the Hope Scholarship Credit and the Lifetime Learning Credit before choosing the best option. Education IRAs and tax credits were created under the Taxpayer Relief Act of 1997 as incentives to taxpayers who incur higher education expenses. Section 530 of the act, however, presents a dilemma for individuals who elect to establish an education IRA because they are in effect renouncing the added benefit of the tax credit or may even pay a 10% penalty for not using the money in the education IRA. Taxpayers are advised to use time-value-of-money concepts to compare the advantages of the three tax incentives at different future dates. Education IRAs are particularly beneficial to middle- and high-income taxpayers who are planning to invest in equities.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1998
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Tax considerations affect investment planning strategies
Article Abstract:
Taxpayers and their advisors should compare the after-tax future value accumulations in various investments in the wake of the introduction of an improved version of the traditional individual retirement account (IRA), a Roth IRA, nondeductible IRAs and other tax-favored investment schemes. The idea behind the comparison of after-tax investment payoffs is to arrive at consistent tax rates and investment amount for both single and married taxpayers. Moreover, comparing the future value of wealth accumulations allows investors to choose the right investments and meet their short- and long-term goals. The formulas used to compute for the future value of accumulations can also be applied to other investment options such as annuities, taxable and nontaxable bonds and certificates of deposit.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1998
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