EXHIBIT 4 Alternate IRA After-tax Values in the Future, with No Estate Enhancement Plan Years Rate of Return 3% 6% 9% 25 $523,114 $1,072,968 $2,155,770 35 $703,466 $1,921,522 $5,103,492 Practical Considerations
Exhibit 4 shows the IRA after-tax value at different assumed rates of return.
The Pension Adjustment Factor PAF is merely the fraction by which the value of the non-pension assets must be multiplied so that the future after-tax values of both investments are equal:
As before, the Pension Adjustment Factor PAF is the fraction by which the value of non-pension assets must be multiplied so that the future after-tax values of both investments are equal:
The appropriate tradeoff between pension and non-pension assets is defined as the one that equates the after-tax value of holding one's assets in each form.
Insofar as pension assets are taxable upon withdrawal, the current after-tax value of the pension assets will typically be less than $100,000, in which case an equitable (after-tax) distribution of the marital estate might give one party the entire pension as well as some of the non-pension assets.
If the bonds are held in a pension and are withdrawn at the end of n years, the pre-tax pension assets will be equal to [B.sub.o][(1 + [r.sub.b]).sup.n] and the after-tax value will be
If the bond interest is taxable each year, and the pre-tax yield is again equal to [r.sub.b], the after-tax value of this investment at the end of n years will be
Consequently, the current $100 in pension assets will be worth less than $100 in non-pension assets since the future after-tax value of the former ($133.75) is less than the future after-tax value of the latter ($156.10).