Alison just started learning about options for non-tax- sheltered saving for her retirement. Her friend is a big fan pre-tax dollars? of tax-sheltered accounts. after-tax accounts? dollars? Why do you suppose that is? Check all that apply under the tax-sheltered mattress? accounts? Funds can be withdrawn at any time for any reason without penalty or tax payments. Investments are always safer in a tax-sheltered account. Contributions may be tax deductible in the year the contributions are made. Earnings are tax-deferred as long as they are reinvested within the account. Before she commits any money to an account, Alison wants to see how much her savings would earn using different investment tactics. She asked you to help and provided the following information: She plans to invest $5,000 every year for 30 years. She has found an investment account that earns 5% per year. She is in a 20% income tax bracket. Complete the following table to show Alison the effect of different options that are available to her. Round your answers to the nearest dollar. Alison's Options After-Tax, After-Tax, Pretax, Not Sheltered Sheltered Sheltered Annual investment $5,000 $5,000 $5,000 30 30 Number of years to invest 30 Interest offered by account (as a %) 5 5 Effective interest for Alison (as a %) Interest factor from table Accumulated over 30 years $ $ $ Invested over 30 years $ $ $ Income tax bracket (as a %) 20 20 20 Income tax saved per year $ Income tax saved over 30 years $ $ $ Your findings Alison'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, Alison concludes that the account is the best, in part, because it's the only one that would save her $ in income taxes every year. Alison 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 $ Next, Alison applies the interest factor from the table of to reach an accumulated total of $ Alison just started learning about options for non-tax- sheltered saving for her retirement. Her friend is a big fan pre-tax dollars? of tax-sheltered accounts. after-tax accounts? dollars? Why do you suppose that is? Check all that apply under the tax-sheltered mattress? accounts? Funds can be withdrawn at any time for any reason without penalty or tax payments. Investments are always safer in a tax-sheltered account. Contributions may be tax deductible in the year the contributions are made. Earnings are tax-deferred as long as they are reinvested within the account. Before she commits any money to an account, Alison wants to see how much her savings would earn using different investment tactics. She asked you to help and provided the following information: She plans to invest $5,000 every year for 30 years. She has found an investment account that earns 5% per year. She is in a 20% income tax bracket. Complete the following table to show Alison the effect of different options that are available to her. Round your answers to the nearest dollar. Alison's Options After-Tax, After-Tax, Pretax, Not Sheltered Sheltered Sheltered Annual investment $5,000 $5,000 $5,000 30 30 Number of years to invest 30 Interest offered by account (as a %) 5 5 Effective interest for Alison (as a %) Interest factor from table Accumulated over 30 years $ $ $ Invested over 30 years $ $ $ Income tax bracket (as a %) 20 20 20 Income tax saved per year $ Income tax saved over 30 years $ $ $ Your findings Alison'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, Alison concludes that the account is the best, in part, because it's the only one that would save her $ in income taxes every year. Alison 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 $ Next, Alison applies the interest factor from the table of to reach an accumulated total of $
