4. Calculating the effects of investing pretax or after-tax dollarsin accounts that are or are not tax sheltered Rebecca just started learning about options for saving for her retirement. Her friend is a big fan of tax-sheltered accounts. pre-tas dollars? after-tax dollars? non-tas- sheltered accounts? 000 tax-sheltered accounts? under the mattress? Why do you suppose that is? Check all that apply. Investments are always safer in a tax-sheltered account. Funds can be withdrawn at any time for any reason without penalty or tax payments. Contributions may be tax deductible in the year the contributions are made. Some withdrawals may be tax-free. Before she commits any money to an account, Rebecca wants to see how much her savings would earn using different investment tactics. (For now assume there are no limitations or restrictions on her retirement contributions. She asked you to help and provided the following information She plans to invest 1.000 every year for 40 years. . She has found an investment account that earns 5% per year. She is in a 20% income tax bracket Interest Factors Future Value of an Annuity 3% 4% 5% Years 2% 10 10.9497 11.4639 12.0061 12.5779 11 12.1687 12.8078 13.4864 14.2068 12 13.4121 14.1920 15.0258 15.9171 13 14.6803 15.6178 16.6268 17.7130 14 15.9739 17.0863 18.2919 19.5986 15 17.2934 18.5989 20.0236 21.5786 16 18.6393 20.1569 21.8245 23.6575 17 20.0121 21.7616 23.6975 25.8404 18 21.4123 23.4144 25.6454 28.1324 19 22.8406 25.1169 27.6712 30.5390 20 24.2974 26.8704 29.7781 33.0660 21 25.7833 28.6765 31.9692 35.7193 22. 27.2990 30.5368 34.2480 38.5052 23 28.8450 32.4529 36.6179 41.4305 24 30.4219 34.4265 39.0826 44.5020 25 32.0303 36.4593 41.6459 47.7271 26 33.6709 38.5530 44.3177 51.1135 27 35.3443 40.7096 47.0842 54.6691 28 37.0512 42.9309 49.9676 58.4026 29 38.7922 45.2188 52.9663 62.3227 28 42.9309 49.9676 37.0512 38.7922 29 52.9663 56,0849 58.4026 62.3227 66.4389 120.7998 45.2188 47.5754 75.4013 10.5681 30 40 60.4020 95.0255 Using the previous table, complete the following table to show Rebecca the effect of different options that are available to her. Round your answers to the nearest dollar After Tax Nonsheltered $1,000 Rebecca's Options After-Tax Sheltered $1,000 Pretax Sheltered $1,000 40 40 40 5 5 5 Annual investment Number of years to invest Interest offered by account (as a %) Effective interest for Rebecca (as a %) Interest factor from table Accumulated over 40 years Invested over 40 years Income tax bracket (as a %) Income tax saved per year Income tax saved over 40 years S $ 20 20 20 5 40 40 40 5 5 15 5 Interest offered by account (as a %) Effective interest for Rebecca (as a %) Interest factor from table Accumulated over 40 years Invested over 40 years Income tax bracket (as a %) Income tax saved per year Income tax saved over 40 years 5 5 S 20 20 20 5 5 5 Your findings Rebecca's friend's fondness for tax-sheltered accounts, because, according to this analysis, they effectively earn nonsheltered accounts. Using only the factors taken into account in this analysis, Rebecca concludes that the because it's the only one that would save her $ in income taxes every year account is the best. In part, Rebecca is tempted to use the money she would have sent to the IRS for fun but wants to know how much more she could earn if she put it toward her annual investment First, she computes that her new annual Investment would be s Next, Rebecca applies the interest factor from the table of to reach an accumulated total of $ Rebecca just started learning about options for saving for her retirement. Her friend is a big fan of tax-sheltered accounts. pre-tax dollars? after-tax dollars? non-tac- sheltered accounts? tax-sholtered accounts under the mattress? Why do you suppose that is? Check all that apply. Investments are always safer in a tax sheltered account. Funds can be withdrawn at any time for any reason without penalty or tax payments. Contributions may be tax deductible in the year the contributions are made. Some withdrawals may be tax tree. Before she commits any money to an account, Rebecca wants to see how much hier savings would earn using different investment tactics. (For now assume there are no limitations or restrictions on her retirement contributions. She asked you to help and provided the following information: . She plans to invest 1,000 every year for 40 years. . She has found an investment account that earns 5% per year She is in a 20% income tax bracket Interest Factors - Future Value of an Annuity Years 2% 3% 4% 5% 10 10.9497 11.4639 12.0061 12.5779 11 12.1687 12.8078 13.4864 14.2068 12 13.4121 14.1920 15.0258 15.9171 13 14.6803 15.6178 16.6268 17.7130 14 15.9739 17.0863 18.2919 19.5986 15 17.2934 18.5989 20.0236 21.5786 16 18.6393 20.1569 21.8245 23.6575 17 20.0121 21.7616 23.6975 25.8404 18 21.4123 23.4144 25.6454 28.1324 19 22.8406 25.1169 27.6712 30.5390 20 24.2974 26.8704 29.7781 33.0660 21 25.7833 28.6765 31.9692 35.7193 22 27.2990 30.5368 34.2480 38.5052 23 28.8450 32.4529 36.6179 41.4305 24 30.4219 34.4265 39.0826 44.5020 25 32.0303 36.4593 41.6459 47.7271 26 33.6709 38.5530 44.3177 51.1135 27 35.3443 40.7096 47.0842 54.6691 28 37.0512 42.9309 49.9676 58.4026 29 38.7922 45.2188 52.9663 62.3227 28 37.0512 42.9309 49.9676 58.4026 29 38.7922 45.2188 52.9663 62.3227 30 47.5754 40.5681 60.4020 56.0849 66.4389 40 75.4013 95.0255 120.7998 Using the previous table, complete the following table to show Rebecca the effect of different options that are available to her. Round your answers to the nearest dollar After-Tax Nonsheltered Rebecca's Options Alter-Tax Sheltered Pretax Sheltered $1,000 $1,000 $1,000 40 40 40 5 5 5 Annual investment Number of years to invest Interest offered by account (as a %) Effective interest for Rebecca (as a %) Interest factor from table Accumulated over 40 years Invested over 40 years Income tax bracket (as a %) Income tax saved per year Income tax saved over 40 years 5 5 20 20 20 s Interest factor from table Accumulated over 40 years Invested over 40 years Income tax bracket (as a %) Income tax saved per year Income tax saved over 40 years 20 20 20 lon llo S Your findings Rebecca's friend's fondness for tax-sheltered accounts, because, according to this analysis, they effectively eam nonsheltered accounts. Using only the factors taken into account in this analysis, Rebecca concludes that the because it's the only one that would save her | in income taxes every year account is the best, in part, Rebecca is tempted to use the money she would have sent to the IRS for fun but wants to know how much more she could eam if she put it toward her annual investment Flest, she computes that her new annual Investment would be s Next, Rebecca applies the interest factor from the table of to reach an accumulated total of $