FINANCE-You earned a $100,000 bonus. The IRS deducts 20%.

QUESTION

1) You earned a $100,000 bonus. The IRS deducts 20%. You put the rest into an IRA (Roth) which earns 3% each year. You don’t pay any additional taxes. How much do you have after 20 (annual compounding) years?2) Instead, you put the entire $100,000 into a Traditional IRA which earns 3% (annual compounding) each year. You pay your 20% tax on the entire proceeds at the end of 20 years. How much are you left with then?3) How about this: You invest the $100,000 at 3% (annual compounding) per year. However, you pay the IRS 20% of the interest each year. How much do you have after 20 years?

ANSWER:

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