I'm trying to figure out whether it's +EV to maximize my IRA contributions. So we basically need to look at the marginal return of a dollar in my sports betting roll vs. in a IRA.
Someone double-check my math please, but for the IRA here's how I see it... we put a dollar in and since we're doing a traditional IRA it's tax free upfront, so we still have the full dollar. Assuming an expected annual return of 8%, we're looking at $1.08 after one year, $2.16 after 10 years, and a whopping $18.63 when I hit retirement age in 38 years. Then of course we pay taxes on withdrawal, but we would pay the same taxes on our sports betting profits so we can just ignore those for now.
For the sports betting roll it's tougher to determine my marginal ROI on a dollar. Even if my average ROI per bet is X% and annual ROI is Y%, I need a lot more info to figure out my marginal annual ROI. What we can do though is figure out the breakeven marginal ROI needed to make it worth forgoing the IRA. Here's that math...
We start with the same dollar, but since we're not putting it in the IRA we have to subtract 28 cents for Uncle Sam, leaving us with $0.72. To get that $0.72 up to the same $18.63 we would achieve in our IRA, we need an annual ROI of 8.93% over the same 38 years. Now I don't want to offend any OldManTed's lurking around these parts, but no sane man would want to bet sports for a living for 38 years straight. Let's optimistically give myself five more years of grinding before I go insane or move to Estonia (or both). After those five years let's say I eke out the same piddling 8% while sipping Swongas as the hypothetical IRA above. That raises the stakes a little bit, as the breakeven marginal sports ROI bumps up to 15.3%. And if I decide to grind just one more year, it goes all the way to 50%.
Of course none of this accounts for any details like the monetary value of my time, joy felt pwning noobs at sports vs. finance, etc.
Someone double-check my math please, but for the IRA here's how I see it... we put a dollar in and since we're doing a traditional IRA it's tax free upfront, so we still have the full dollar. Assuming an expected annual return of 8%, we're looking at $1.08 after one year, $2.16 after 10 years, and a whopping $18.63 when I hit retirement age in 38 years. Then of course we pay taxes on withdrawal, but we would pay the same taxes on our sports betting profits so we can just ignore those for now.
For the sports betting roll it's tougher to determine my marginal ROI on a dollar. Even if my average ROI per bet is X% and annual ROI is Y%, I need a lot more info to figure out my marginal annual ROI. What we can do though is figure out the breakeven marginal ROI needed to make it worth forgoing the IRA. Here's that math...
We start with the same dollar, but since we're not putting it in the IRA we have to subtract 28 cents for Uncle Sam, leaving us with $0.72. To get that $0.72 up to the same $18.63 we would achieve in our IRA, we need an annual ROI of 8.93% over the same 38 years. Now I don't want to offend any OldManTed's lurking around these parts, but no sane man would want to bet sports for a living for 38 years straight. Let's optimistically give myself five more years of grinding before I go insane or move to Estonia (or both). After those five years let's say I eke out the same piddling 8% while sipping Swongas as the hypothetical IRA above. That raises the stakes a little bit, as the breakeven marginal sports ROI bumps up to 15.3%. And if I decide to grind just one more year, it goes all the way to 50%.
Of course none of this accounts for any details like the monetary value of my time, joy felt pwning noobs at sports vs. finance, etc.
