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- Title
Breakeven holding periods for tax advantaged savings accounts with early withdrawal penalties.
- Authors
Horan, Stephen M.
- Abstract
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.
- Subjects
INDIVIDUAL retirement accounts; CAPITAL gains; TAX rates; MUTUAL funds
- Publication
Financial Services Review, 2004, Vol 13, Issue 3, p233
- ISSN
1057-0810
- Publication type
Article