IRA Calculator – Taxed VS Non-Taxed Growth in P2P Investing

Over the weekend I created an IRA calculator that allows you see how placing your account into a tax protected IRA can impact your gains. As your tax bracket goes up you benefit increasingly from an IRA.   All growth in an IRA is tax free. No only does it simplify April 15th but your growth differences can be very dramatic!

If you are in the 28% tax bracket, and start with $10K – contributing $5K per year, you gain almost $430K over the course of 30 years!

If you are curious what your own situation looks like, take a look at the new IRA calculator!


2 thoughts on “IRA Calculator – Taxed VS Non-Taxed Growth in P2P Investing

  1. This is a beautiful demonstration.

    IRAs give a generous tax break — hence the limitation on total investment.  Most securities tend to provide a rate of return that’s equivalent after-tax (e.g., muni bonds vs corporate bonds).  This means that if you have a comparatively advantaged tax treatment, it’s a pretty good way to “beat the market.”

    Given that you can only invest a certain amount each year under the preferred tax treatment of your IRA, it makes the most sense to target those investments toward securities otherwise most burdened by taxes.

    The tax rates on unearned income tax rate to creditors/lenders will likely continue to be higher than capital gains rates on equities for some time.  Furthermore, low-coupon, low yield, and long-term loans tend to at least defer unearned income taxes too.  High yielding short-term loans with high coupon rates are the hardest hit by taxes.  

    Some retirement investment specialists argue this as a reason why you should a 401k or IRA in high dividending stocks. Why not go a step further and say that it’s a good reason to invest it in short-term, high yield, high-coupon rate debt?


    1. P2P lending is a perfect investment for a ROTH. The income is realized immediately unlike unrealized gains. Even dividend stocks will have some unrealized advantages (hopefully).

      Although I find it interesting that all notes issued after November 2008 are issued a 1099-OID at the end of the year instead of a 1099-INT. If you buy 25 dollar notes and it earns less than 10 dollars it will not be reported. This is basically every 25 dollar note. I wonder how Turbo Tax will handle these…

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