The Break-Even Frontier for Early Withdrawls from a Tax Deferred Account
5 Pages Posted: 21 Sep 2015
Date Written: August 16, 2003
The break-even frontier represents the minimum number of years that a contribution to a tax deferred retirement plan must remain invested in the tax deferred account (TDA) in order to achieve a higher terminal value after an early withdrawal than the alternative of investing the contribution as a no deductible after tax cash flow. Our results show that the break even frontier is a relatively short time in many applicable cases. In general, investors should not automatically rule out TDA's just because early withdrawals may be anticipated. Each investors case should be examined individually to identify the feasible break-even opportunities given the returns and tax status expected. Each investors case should be examined individually to identify the feasible break even opportunities given the returns and tax status expected.
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