Procedure to determine the optimal Roth IRA versus deductible IRA allocation

Authors

  • Robert Hull Clarence E. King Endowed Chair of Finance, School of Business
  • John Hull Internal Wholesaler, American Century Investment Services, Inc

DOI:

https://doi.org/10.61190/fsr.v25i4.3229

Keywords:

Retirement planning, IRA, Tax rates

Abstract

We offer a procedure to guide the Roth IRA versus deductible IRA (RVD) allocation decision. We require users to input 10 values to generate outputs that include contribution and withdrawal tax rates; maximum gain; and, optimal amount to allocate between the two major IRA types. By being at their optimal RVD allocation, we find that a modest earning couple can achieve a lifetime wealth gain amounting to about $180,000 in today’s dollars. We provide figures and tables illustrating RVD outcomes when there are changes in key variables such as salary match, adjusted gross income, portfolio returns, and withdrawal years.

Downloads

Published

2016-12-30

How to Cite

Hull, R., & Hull, J. (2016). Procedure to determine the optimal Roth IRA versus deductible IRA allocation. Financial Services Review, 25(4), 373–414. https://doi.org/10.61190/fsr.v25i4.3229

Issue

Vol. 25 No. 4 (2016): Winter 2016

Section

New Original Submission

License

Copyright (c) 2014 Academy of Financial Services

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Author(s) retain copyright and grant the Journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows to share the work with an acknowledgment of the work's authorship and initial publication in this Journal.

This license allows the author to remix, tweak, and build upon the original work non-commercially. The new work(s) must be non-commercial and acknowledge the original work.