An IRA: The Power of Tax Deferred Compounding!
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Example A
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Example B
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Age
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Payment
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Year End Accumulation
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Payment
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Year end accumulation
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22
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$2,000
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$2,240
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0
|
0
|
|
23
|
$2,000
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$4,749
|
0
|
0
|
|
24
|
$2,000
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$7559
|
0
|
0
|
|
25
|
$2,000
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$10,706
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0
|
0
|
|
26
|
$2,000
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$14,230
|
0
|
0
|
|
27
|
$2,000
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$18,178
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0
|
0
|
|
28
|
$2,000
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$20,359
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$2,000
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$2,240
|
|
29
|
0
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$22,803
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$2,000
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$4749
|
|
30
|
0
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$25,539
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$2,000
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$7559
|
|
31
|
0
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$28,603
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$2,000
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$10,706
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|
32
|
0
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$32,036
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$2,000
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$14,230
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|
33
|
0
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$35,880
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$2,000
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$18,178
|
|
34
|
0
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$40,186
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$2,000
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$22,599
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|
35
|
0
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$45,008
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$2,000
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$27,551
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|
36
|
0
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$50,409
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$2,000
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$33,097
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|
37
|
0
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$56,458
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$2,000
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$39,309
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|
38
|
0
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$63,233
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$2,000
|
$46,266
|
|
39
|
0
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$70,821
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$2,000
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$54,058
|
|
40
|
0
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$79,320
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$2,000
|
$60,785
|
|
41
|
0
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$88,838
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$2,000
|
$72,559
|
|
42
|
0
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$99,499
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$2,000
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$83,507
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|
43
|
0
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$111,438
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$2,000
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$95,767
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|
44
|
0
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$124,811
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$2,000
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$109,499
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|
45
|
0
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$139,788
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$2,000
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$124,879
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|
46
|
0
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$156,563
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$2,000
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$142,105
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|
47
|
0
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$175,351
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$2,000
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$161,397
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|
48
|
0
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$196,383
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$2,000
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$183,005
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49
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0
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$219,960
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$2,000
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$207,206
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|
50
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0
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$246,355
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$2,000
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$234,310
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51
|
0
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$275,917
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$2,000
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$264,668
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|
52
|
0
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$309,028
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$2,000
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$298,668
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|
53
|
0
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$346,111
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$2,000
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$336,745
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|
54
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0
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$387,644
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$2,000
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$379,398
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55
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0
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$434,161
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$2,000
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$427,166
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|
56
|
0
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$486,261
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$2,000
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$480,665
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|
57
|
0
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$544,612
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$2,000
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$540,585
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|
58
|
0
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$609,965
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$2,000
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$607,695
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|
59
|
0
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$683,162
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$2,000
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$682,859
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|
60
|
0
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$765,141
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$2,000
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$767,042
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|
61
|
0
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$856,958
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$2,000
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$861,327
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|
62
|
0
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$959,793
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$2,000
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$966,926
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|
63
|
0
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$1,074,968
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$2,000
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$1,085,197
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|
64
|
0
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$1,203,964
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$2,000
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$1,217,661
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65
|
0
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$1,348,440
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$2,000
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$1,363,780
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The worker in Example A gets started early, and invests $2,000 a year in an IRA for seven years, from age 22 to 27, then lets the earnings continue to compound until age 65. That's it - a total investment of $14,000. At a 12% annual compound rate of return, this investor winds up with $1,348,440. The person in Example B gets distracted by the usual things young people are distracted by - a newer car, better apartment, or home, a vacation to Cancun, Hawaiian Islands or Walt Disney World. They don't start their IRA until age 28, but then consistently deposits the $2,000 Annual Maximum until age 65, a total investment of $74,000. It grows to $1,363,780 - just $15,340 more than the person who started just seven years earlier and deposited only about one-sixth as much. Those numbers illustrate why I rarely meet a middle-aged person who doesn't say: "I wish somebody had taught me about investing when I was younger." This is just an example and your return may vary according to investments chosen. Your investment may be worth more or less than you invested. |
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Last updated on 29 Nov 2009 - Sherry Kline