The Break-Even Frontier for Early Withdrawls from a Tax Deferred Account

5 Pages Posted: 21 Sep 2015

See all articles by Arun J. Prakash

Arun J. Prakash

Florida International University (FIU) - Department of Finance; Florida International University

Michael Smyser

Independent

Date Written: August 16, 2003

Abstract

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.

Suggested Citation

Prakash, Arun Jai and Smyser, Michael, The Break-Even Frontier for Early Withdrawls from a Tax Deferred Account (August 16, 2003). Available at SSRN: https://ssrn.com/abstract=2663174 or http://dx.doi.org/10.2139/ssrn.2663174

Arun Jai Prakash (Contact Author)

Florida International University (FIU) - Department of Finance ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Florida International University ( email )

Miami, FL 33199
United States

Michael Smyser

Independent

No Address Available

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