Give your client a picture to hang on to of what Compound Interest looks like. |
This is what compounding your money looks like. You start with a lump sum investment and each year your account grows as the interest is paid. Most people just roll the interest earned back into the investment account, which continues to add to the compounding effect. While the major focus is on the compounding interest, the increasing tax often goes unnoticed. Let's look at what I am talking about. |
The calculation is performed in a worksheet defined as follows: Column 1: Account balance at the beginning of the year. Column 2: Annual interest earned: (Column 1 * Taxable Account 1 ROR). Column 3: Account balance at the end of the year: (Column 1 + Column 2). |