bob was recently hired as a physician by south hospital. he is married and will
ID: 2635685 • Letter: B
Question
bob was recently hired as a physician by south hospital. he is married and will earn $205,000 annually. the hospital has a money purchase plan and a 403(b), but he will not be eligible for one year. he wants to begin saving for retirement now and has asked you about IRAs.
a. can he invest pre-tax dollars into a treditional IRA? why or why not?
b. can he invest in a roth IRA? why or why not?
c. will your answer to either question after Bob has been employed for one year and is enrolled in the employer-sponsored plans? how?
Explanation / Answer
a) Pre-dollars can be invested in traditional IRA because the money that is withdrawn at retirement would be applicable to less amount of taxes. Hence, the amount of taxes paid would be less and the net income would be more.
b) Pre-tax dollars cannot be invested in roth IRA. Only after-tax dollars can be invested in Roth IRA which contributes after-tax dollars in your account and finally at the time of retirement, one no need to pay taxes when the money is out.
c) Once bob is covered by a retirement plan at work, he can contribute to the traditional IRA depending on his income. Here, the earnings grow tax-deferred.
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