Breakeven holding periods for tax advantaged savings accounts with early withdrawal penalties
DOI:
https://doi.org/10.61190/fsr.v13i3.4797Keywords:
Tax planning, Saving, Retirement planning, 401(k), IRAAbstract
At what point does an IRA with an early withdrawal penalty accumulate more wealth than a fully taxable investment? This paper models breakeven holding periods, allowing tax rates to change and the annual return to be partitioned into ordinary income, realized capital gains, and unrealized capital gains— each being taxed differently. Breakeven holding periods decrease at a decreasing rate with the return and can be quite short for investors facing declining tax rates. In addition, breakeven points are very sensitive to how the return on the non-IRA investment is taxed, doubling or tripling when the return is taxed as a typical mutual fund rather than taxed as ordinary income.
Downloads
Downloads
Published
Issue
Section
License
Copyright (c) 2004 Academy of Financial Services
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Author(s) retain the copyright and full publishing rights without restriction.
Author(s) grant the Journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows reusers to distribute, remix, adapt, and build upon the material in any medium or format, for noncommercial purposes only. Reusers must acknowledge the work's authorship and initial publication in this Journal.
Noncommercial means not primarily intended for or directed towards commercial advantage or monetary compensation.
In addition, FSR grants to the UGA Libraries a worldwide, non-exclusive license to all content published by the Journal, including metadata, that is necessary to publish, transmit, and index the Journal and to preserve its content over time.
