If the money invested through an IRA is withdrawn before the investor turns 59 1/2, it is subject to a penalty of 10%. Therefore, it is unclear whether an IRA is preferred to an ordinary investment or not. If the money remains invested in an IRA for a sufficient time, the IRA breaks even despite the penalty. In this paper, an expression is derived for the break-even period for a partially withdrawn. It is shown that the break-even periods are shorter than previously thought. Some simple rules of thumb are proposed for circumstances when the IRA will be attractive and circumstances when investors should stay away from the IRA.
|Original language||English (US)|
|Number of pages||8|
|Journal||Journal of Financial Counseling and Planning|
|State||Published - Jan 1 1996|
All Science Journal Classification (ASJC) codes
- Economics and Econometrics