# Difference between revisions of "User:Assumer/Sandbox"

It may not be clear why deferring taxes is a good idea, especially if you expect to be in the same tax bracket in the future.

For an example, refer to Table 1. This compares a hypothetical investment of \$10,000 in a vehicle (such as a bond or CD) returning 6% annually for 5 years. The investor is assumed to be in the 25% tax bracket both during the investment and the withdrawal stage. A tax-deferred account (such as a non-deductible traditional IRA) waits until the investor withdraws the funds, and then taxes are paid on the entire, cumulative, amount of gains. In a taxable account, the 25% tax is paid each year on the gains for that given year. It can be seen that deferring the taxes yields a final, after-tax amount of \$12,537 for this hypothetical investor, while paying taxes each years yields a final, after-tax amount of \$12,462.

It should be noted that tax-deferred accounts may have additional benefits (such as a deductible IRA), which this comparison ignores in an attempt to make a more apples-to-apples comparison.

Table 1. Tax Deferment
Year Return   Taxable   Tax-Deferred
Tax Rate Return Taxes Total Tax Rate Return Taxes Total
0 - - - - \$10,000 - - - \$10,000
1 6% 25% \$600 \$150 \$10,450 - \$600 - \$10,600
2 6% 25% \$627 \$157 \$10,920 - \$636 - \$11,236
3 6% 25% \$655 \$164 \$11,412 - \$674 - \$11,910
4 6% 25% \$685 \$171 \$11,925 - \$715 - \$12,625
5 6% 25% \$716 \$179 \$12,462 25% (of total return) \$757 \$846 \$12,537

Start with \$10,000. After year 1, you will have \$150 less total return after taxes (compared to the non-taxed amount of \$10,600). Going into year 5, you will be starting with a higher amount (\$12,625) if the taxes were deferred than not (\$11,925). In year 5 (the year where the taxes have been deferred to) you will end up with a higher starting amount, which shows that deferring taxes is the best approach.

Editor's note: Did I do these calculations correctly? --Assumer 08:14, 26 March 2013 (CDT)

How do I put more of a "break" between the taxable and tax deferred columns? Like a double vertical bar? --Assumer 08:14, 26 March 2013 (CDT)

You can get a lot more complicated as shown here: wikipedia:Help:Table#Setting borders, but one simple approach is to insert a non-break space (&nbsp;) see wikipedia:List of XML and HTML character entity references. Tables usually ignore spaces, but non-break spaces force the insertion. Note the column spans the table. --LadyGeek 21:12, 26 March 2013 (CDT)