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Impact of Tax Reform Act of 1986 on IRA's Investment Value

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  • William Reichenstein
  • Mark L. Cross

Abstract

The purpose of this study is to present an economic analysis of the tax advantages of deductible and nondeductible IRAs under the 1986 Tax Reform Act. These advantages are compared to those offered by other pension plans. The results show that the tax advantages of deductible IRAs allow for substantially higher values than the value of a similar investment held outside a pension account. The nondeductible IRA does not provide tax advantages over non-IRA investments if investors expect to withdraw funds within ten years. The nondeductible IRAs continue to have substantial advantages over non-IRA investments, especially over longer investment horizons. The tax advantages of deductible and nondeductible IRAs increase sharply with the length of the investment period and the rate of return on investment.

Suggested Citation

  • William Reichenstein & Mark L. Cross, 1989. "Impact of Tax Reform Act of 1986 on IRA's Investment Value," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 12(1), pages 71-86.
    • Handle: RePEc:wri:journl:v:12:y:1989:i:1:p:71-86
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