THE NEW RULES OF RETIREMENT SAVING • 55
liability on the account, not just how the money is taxed when contributed. Sounds good in theory, but what do the numbers look like? I used a client, thirty-five-year-old Paul, for this experiment. Paul pays about 33 percent of his income in taxes when you add up his federal, local and state tax obligations. He’s contributing $7,500 annually to a tax-deferred account. For the purpose of this exercise, I assume he’ll keep contributing to his account for thirty years until he’s sixty-five. I also assume a 7 percent net annual growth rate, meaning his retirement account is growing 7 percent a year after fees. I assume he stays in the same tax bracket in re- tirement, as most of my clients do. We want to see the amount of taxes he avoided paying in his working years through deferral and how much he might have to pay when accessing the money in retirement. Here are the raw numbers: Tax Burden in a Tax-Deferred Account
Look at those right-hand circles. They should blow you away. They sure blew me away!
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