Re: April 2007, Volume 29, Issue 4 Reader Questions "Tax Burden" Article My father, a retired chiropractor, passed the above referenced article on to me and asked for my opinion. I was concerned by the analysis of traditional IRA's and 40 Ik's offered by Mr. Greenfield. Can you confirm that the information contained in this article is correct? For example, Mr. Greenfield states that the traditional IRA in his example would result in a paltry $135,000 in tax savings for the individual. Surely, Mr. Greenfield knows that the money earned in the traditional IRA account accumulates tax-deferred until the money is withdrawn. Therefore, the total tax savings to the traditional IRA account holder (prior to distribution) is certainly more than the $135,000 reported by Mr. Greenfield in the article, and as much as $540,000 ($1.8 million X 30%), right? Furthermore, the assumption that the doctor in the example would be at the exact same tax rate in retirement as he was during his working life seems tenuous at best. For example, if the doctor in the example were earning $ 100,000 during his working life, then all the contributions and gains during that time would have resulted in tax savings at the very highest rate applicable. However, once the doctor stops working and begins to take distributions, all of that money is taxed as ordinary income, subject to the graduated tax system, resulting in a much lower effective tax rate at distribution versus contribution. Also, Mr. Greenfield's math is wrong. In the article, Mr. Green states that the IRS would get all the taxes back in a little over two years. However, using Mr. Green's numbers from the article, the correct calculation is $135,000/$44,044 = 3.07 years. Are there other mathematical mistakes? Finally, while I am not an expert on taxes, finances, or insurance, Mr. Greenfield's comparison of traditional IRA's and life insurance seems to be missing some important analysis. For example, the article does not appear to take into account the tax-deferred benefit of traditional IRA's versus the time-value-of-money loss associated with paying the tax upfront. Do you agree with his conclusions? Obviously, Roth IRA's are better than Traditional IRA's for most individuals. But it also seems obvious to me that traditional IRA's are certainly much better for most people than Mr. Greenfield reveals in his article. The bottom line is that the analysis in the article docs not appear to capture the true result for most doctors, does not make correct assumptions, and contains mathematical errors. Jim Whalev LaJolla, CA
