ira

Scenario 1. $5,500 contribution in Roth IRA. No income tax deduction advantage.
Scenario 2. $5,500 contribution in Traditional IRA. Resulting in $1,000 income tax deduction.

Contribution Scenario 1.

Roth IRA account 2016 balance = $5,500.

Let's say a 10x growth 20 years from now.
Traditional IRA account 2036 balance = $5,500 x 10 = $55,000
Total accumulated wealth = $55,000

Let's say a 100x growth 20 years from now.
Traditional IRA account 2036 balance = $5,500 x 100 = $550,000
Total accumulated wealth = $550,000

Contribution Scenario 2.

Traditional IRA account 2016 balance = $5,500.
Investment account 2016 balance = $1,000.

Let's say a 10x growth 20 years from now, at a 10% tax rate
Traditional IRA account 2036 balance = $5,500 x 10 = $55,000
Investment account 2036 balance = $1,000 x 10 = $10,000
Total accumulated wealth = ($55,000 + $10,000) x (1 - 10%) = $59,500

Let's say a 100x growth 20 years from now, at a 10% tax rate
Traditional IRA account 2036 balance = $5,500 x 100 = $550,000
Investment account 2036 balance = $1,000 x 100 = $100,000

Total accumulated wealth = ($550,000 + $100,000) x (1 - 10%) = $595,000

Withdrawal Scenario 3.

Standard Deduction = $4,000 + $1,550 (age 65+) = $5,550

Let's say annual IRA withdrawal at age 65+ = $100,000
Taxable Income = $100,000 - $5,550 = $94,450

Income tax = ($9,225 x 10%) + ($37,450 x 15%) + (47,775 x 25%) = $18,483.75

Thus, savings of Traditional IRA vs Roth IRA
= $595,000 - $550,000
= $45,000
> Income tax at age 65+

Withdrawal Scenario 4.

Standard Deduction = $4,000 + $1,550 (age 65+) = $5,550

Let's say annual IRA withdrawal at age 65+ = $38,550
Taxable Income = $38,550 - $5,550 = $33,000

Income tax = ($9,225 x 10%) + ($23,775 x 15%) = $4,493

Thus, savings of Traditional IRA vs Roth IRA
= $59,500 - $55,000
= $4,500
= Income tax at age 65+

Self Employed Scenario

Let's say annual Health Insurance Premium = $1,000
Let's say annual out-of-pocket medical expenses = $100, and > 10% of adjusted gross income
Let's say federal tax rate at 15%, state tax rate at 5%, FICA at 7.65%

Federal Tax Deduction based on Premium = $1,000 x 15% = $150
State Tax Deduction based on Premium = $1,000 x 5% = $50
Federal Tax Deduction based on Expenses = $100 x 15% = $15
State Tax Deduction based on Expenses = $100 x 5% = $5

Thus, total deduction = $150 + $50 + $15 + $5 = $220

Self Employed Health Reimbursement Scenario

Let's say annual Health Insurance Premium = $1,000
Let's say annual out-of-pocket medical expenses = $100
Let's say federal tax rate at 15%, state tax rate at 5%, FICA at 7.65%

Federal Tax Deduction based on Premium = $1,000 x 15% = $150
State Tax Deduction based on Premium = $1,000 x 5% = $50
FICA Deduction based on Premium = $1,000 x 7.65% = $76.50
Federal Tax Deduction based on Expenses = $100 x 15% = $15
State Tax Deduction based on Expenses = $100 x 5% = $5
FICA Deduction based on Expenses = $100 x 7.65% = $7.65

Thus, total deduction = $150 + $50 + $76.50 + $15 + $5 + $7.65 = $304.15