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Bain & Company Can someone recommend a good starting point on how to go around solving case interviews? What frameworks should I follow? I am kinda new to case interview and want to develop skills to solve them. Any books, online sources would be really appreciable. Deloitte EY-Parthenon Strategy& McKinsey & Company Boston Consulting Group Bain & Company
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1) Moot point not mute point
2) Not paying taxes on interest is huge. Let’s say you get paid $100, invest it, and then it grows to $1,000. You would pay income tax on $100 and capital gains on $900. The benefit of tax shelter isn’t avoiding the income tax on the $100 — you either pay that now (Roth) or later (traditional). The benefit of tax sheltering is not paying the capital gains!!
S&1, no one is suggesting leaving the money in the Traditional IRA. You make a non-deductible contribution to the Traditional and then immediately convert to Roth. Direct Roth contributions over the income limits are prohibited. Traditional contributions are permitted but unwise for the reasons you state. Conversions from Traditional to Roth have no income limits but require immediate payment of taxes on the gains. Put it all together and you get: Non-deductible Traditional IRA contribution, immediate Roth conversion before any gains are created, pay no taxes. Result is a Roth with $5500 in it despite being over the income limits and no adverse tax results
Nice try IRS....
BCG1 - all $5500
C1 - no, it’s a choice to pay income tax now instead of later.
I personally choose Roth because I don’t want the hassle of income tax in the future.
Some choose Traditional to have access to the income tax money now, and pay the income tax in the future.
Others dollar cost average to mitigate the risk of their income tax burden because no one knows what the future will bring.
Roth actually benefits the government over Traditional as the government gets theirs on the front end.
SA1, you seem to have a crystal ball to be able to tell your taxes in retirement will be lower.
So much bad logic
BCG1 - you can do a conversion of all funds in a traditional account. Say you have $100k Traditional, you can convert $100k but will have the income tax burden at year end.
What I’m talking about is simply funding the IRA for the year, which is capped at $5500.
To SA1’s question, after a certain income threshold you are no longer eligible to contribute to a Roth account. The loophole it the conversion of a Traditional account which is legal.
Therefore, max to a Traditional on Jan 2, and convert to a Roth on Jan 3 when the funds clear - if you prefer Roth.
S&1 - the benefit of all retirement accounts is not income tax, but capital gains tax. IRAs and 401ks shield you from Capital Gains tax.
The income tax will be paid one way or the other and it is mathematically the same in either account, the variable being unknown future income tax rate.
OW1 - the taxes don’t come out of your IRA, they are sorted out with your normal tax filing at the end of the year.
So, if you contribute $5500 to a Roth, your income taxes for that are included as part of your total income.
If you contribute $5500 to a Traditional, you control the income tax dollars until you are required to pay it in the future. If you invest those income tax dollars in the exact same investment as your IRA, you essentially will hand that pot over to the government at retirement and have exactly the same had you gone Roth. (Less unknown income tax variances)
The benefit of Traditional is the utility of the funds today. The benefit of the Roth is hassle free retirement. The contribution tends to throw people off but they are mathematically the same as you have shown in your formula.
?
Go on
Google “Backdoor Roth IRA"
How is this a loophole if you are paying taxes at a higher rate than you would as a retiree?
@SA1 - the $1 you pay taxes on now will likely be $3 by the time you retire, so you don't have to pay on the $2 of gains. Pretty simple.
Generally though, you should have less income in retirement overall, since you will not have a job. I suppose it depends on your eventual goals, but if you’re planning to retire and have a fairly laid back lifestyle, it should hold. Also, you can combine withdrawals from your Roth IRA and your 401k to minimize your overall tax burden. But for most people, I would anticipate a lower salary in retirement
Dude. S&1, you are very confused.
OW1 - deficits are not paid by tax revenue increases, they are paid by devaluing the debt through inflation.
Beat me to it, OP! Good reply to S&1.
S&1, you making us look bad 😩
I’m willing to bet you don’t even know about the Mega Backdoor Roth? I put $53K into my ROTH last year with this!
Thanks for the tip. How much did you convert?