Question

Determine the most advantageous retirement plan for each situation.

1)Juan expects to be in a higher tax bracket upon retiring
2)Sadie wants to have higher take-home pay during her working years
3)Jerome wants to contribute to his plan with pretax dollars.
4)Alexis wants withdrawals during retirement to be tax exempt.
Drag each description to the correct location on the table. A) Roth IRA B)Traditional IRA

Answer 1

Juan and Alexis would find a Roth IRA most beneficial as it provides tax-exempt withdrawals, fitting Juan's higher tax bracket in retirement and Alexis's preference for tax-free retirement income. Sadie and Jerome would benefit from a Traditional IRA, which offers pretax contributions to reduce current taxable income and fits Jerome's desire to contribute with pretax dollars.

Step-by-step explanation:

To determine the most advantageous retirement plan for each situation:

1. Juan, who expects to be in a higher tax bracket upon retiring, might prefer a Roth IRA, where contributions are made with after-tax dollars and withdrawals are tax-exempt.
2. Sadie, who wants higher take-home pay during her working years, may benefit from a Traditional IRA, which allows for pretax contributions, thereby reducing taxable income.
3. Jerome wants to contribute to his plan with pretax dollars, aligning his needs with a Traditional IRA, as it offers tax-deferred growth until withdrawal.
4. Alexis, who wants tax-exempt withdrawals during retirement, would find a Roth IRA to be the best choice as it offers tax-free withdrawals in retirement.