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Jack is a 48-year-old consultant who earns $480; 000 per year. Hector is a 19-year-old college...

Jack is a 48-year-old consultant who earns $480; 000 per year. Hector is a 19-year-old college
student who has just nished a summer job that paid him $5; 000. Both are planning on
putting some of their earnings into IRA accounts. Who should be more likely to use a Roth
IRA instead of a traditional IRA? Explain.

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Answer #1

Since Roth IRA have a income limit of $135,000 per year. Single tax filers earning more than $135,000 are not allowed to contribute to Roth IRA, hence Jack cannot contribute to Roth IRA.

Now since Hector is allowed to invest in Roth IRA he can do so. He would also not be taxed anything as the income is pretty less for the year. Hence he would invest in Roth IRA to get tax benefit today due to less Income and tax benefit on withdrawls as Roth IRA is not taxable on withdrawls

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