Optimal Tax Deferral Choices In The Presence Of Changing Tax Regimes

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Terrance Jalbert
Eric Rask
Mercedes Jalbert


return on investment, ROI, tax


In this paper the attractiveness of tax-deferred and non-deferred investments in periods of changing tax regimes are examined.  Specifically the desirability of deferring taxes given one’s current tax rate, estimate of future tax rates, number of years until retirement, and the expected rate of return on investment is explored.  Under some combinations of tax rates and investment horizons, tax deferral is found to be undesirable while in others it is found to be desirable.  Using the formulas and tables developed here, an individual can identify the rate of return on investment at which he is indifferent between deferring and not deferring, rates at which tax deferral is preferred and rates at which tax deferral is inferior.  In addition, the sensitivity of the decision to the timing of future tax rate changes is explored.  This research provides investors a more comprehensive understanding of the factors that determine optimal tax deferral choices and will permit investors to make better tax deferral decisions.


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