Personal Investment: Roth IRA vs. Traditional IRA EGR 403-01 Summer 2005 Group #8 Members: Jon Kai-Tsun Chan Steven Doyle Simon Margolis Thomas Nance Tal.

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Presentation transcript:

Personal Investment: Roth IRA vs. Traditional IRA EGR Summer 2005 Group #8 Members: Jon Kai-Tsun Chan Steven Doyle Simon Margolis Thomas Nance Tal Bezalel Nehmad

Purpose & Assumptions Study & Compare Traditional IRA and Roth IRA Which Yields The Most Money? Perform Sensitivity Analysis To Find Where One Becomes Better Than Other No Massive Inflation/Depression Eras No Situations Requiring Taking Money Out Of Retirement Fund(s) Stable Job(s)

Scenario Of Investor Current Age : 25 Years Projected Working Career : 50 Years College Graduate, Starts Saving At 25 Starting Salary : $55k, 1% Increase, $400 Savings For Retirement : 10% Of Net Income Investor Is Single At 25, Married At 29, First Child At 31, Purchases House At 32, Second Child at 34 Mortgage, Taxes, & Deductions Included In Analysis

Cash Flow Diagram

Elements Of Sensitivity IRA Rate Of Return - 4% to 14% Years Of Work - 25 to 60 Years Starting Salary - $50k to $70k Salary Increase – 0.5% to 3.5% Per Year Contribution Amount Of Net Salary - 2% to 20% All Values Not Being Modified Are Kept As Stated In Scenario

IRA Rate Of Return RORTraditionalRoth 0.50%$208,584$202,753 1%$227,335$226,418 2%$228,791$286,539 3%$292,528$369,794 4%$382,795$486,393 5%$511,682$651,287 6%$696,950$886,385 7%$964,694$1,223,821 8%$1,353,242$1,710,717 9%$1,918,853$2,416,152 10%$2,744,024$3,441,316 11%$3,949,579$4,934,284 12%$5,712,226$7,111,456 13%$8,289,985$10,288,610 14%$12,058,936$14,925,771

Starting Salary Starting Annual Salary Future Value IRARoth $30,000$961,831$1,320,819 $50,000$2,375,121$3,186,433 $55,000$2,739,112$3,664,842 $60,000$2,981,034$4,105,417 $80,000$3,517,698$5,414,198

Salary Increase % RaiseTraditionalRoth 0.5%$2,563,984$3,437, %$2,707,784$3,664, %$2,937,837$3,910, %$3,146,747$4,177, %$3,372,212$4,466, %$3,615,848$4,781, %$3,879,444$5,124,005

Years Of Work Age At Retirement Future Value TraditionalRoth 50$272,470$335,281 60$715,199$928,693 74$2,739,112$3,664,842 90$12,615,886$17,019,600

Savings Percentage

Resources Vanguard IRAs : Roth vs. Traditional Fidelity IRA Accounts The Vanguard Group Primerica Financial Services IRS Income Tax Tables IRS Income Tax Tables Fidelity Essentials of Engineering Economic Analysis