Rebecca just started learning about options for saving for her retirement. Her friend is a big fan of tax-sheltered accounts.

Why do you suppose that is? Check all that apply.

A. Some withdrawals may be tax-free.

B. Earnings are tax-deferred as long as they are reinvested within the account.

C. Investments are always safer in a tax-sheltered account.

D. Contributions may be tax deductible in the year the contributions are made.

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

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
30	40.5681	47.5754	56.0849	66.4389
40	60.4020	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.

Your findings __Don't Support; Support__ Rebeccas friends fondness for tax-sheltered accounts, because, according to this analysis, they effectively earn __More than; less than; the same as__ nonsheltered accounts.

Using only the factors taken into account in this analysis, Rebecca concludes that the __Pretax Sheltered; after-tax nonsheltered; after-tax sheltered__ account is the best, in part, because its the only one that would save her $___ in income taxes every year.

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 $___.

Next, Rebecca applies the interest factor from the table of __Type in answer__ 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-tax- sheltered accounts? tax-sheltered accounts? under the mattress? Why do you suppose that is? Check all that apply. Some withdrawals may be tax-free. Earnings are tax-deferred as long as they are reinvested within the account. Investments are always safer in a tax-sheltered account. Contributions may be tax deductible in the year the contributions are made. 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 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 30 40.5681 47.5754 56.0849 66.4389 40 60.4020 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. Rebecca's Options After-Tax Pretax After-Tax Sheltered Nonsheltered Sheltered Annual investment $1,000 $1,000 $1,000 Number of years to invest 40 40 40 Interest offered by account (as a %) 5 5 5 Effective interest for Rebecca (as a %) Interest factor from table Accumulated over 40 years $ $ $ Invested over 40 years $ $ $ Income tax bracket (as a %) 20 20 20 Income tax saved per year $ $ $ Income tax saved over 40 years $ Your findings Rebecca's friend's fondness for tax-sheltered accounts, because, according to this analysis, they effectively earn nonsheltered accounts. account is the best, in part, 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. 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 $ Next, Rebecca applies the interest factor from the table of to reach an accumulated total of $ Rebecca's Options After-Tax After-Tax Pretax Nonsheltered Sheltered Sheltered Annual investment $1,000 $1,000 $1,000 Number of years to invest 40 40 40 Interest offered by account (as a %) 5 5 5 Effective interest for Rebecca (as a %) Interest factor from table Accumulated over 40 years $ $ $ Invested over 40 years $ $ $ Income tax bracket (as a %) 20 20 20 Income tax saved per year $ $ $ Income tax saved over 40 years $ $ $ 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-tax- sheltered accounts? tax-sheltered accounts? under the mattress? Why do you suppose that is? Check all that apply. Some withdrawals may be tax-free. Earnings are tax-deferred as long as they are reinvested within the account. Investments are always safer in a tax-sheltered account. Contributions may be tax deductible in the year the contributions are made. 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 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 30 40.5681 47.5754 56.0849 66.4389 40 60.4020 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. Rebecca's Options After-Tax Pretax After-Tax Sheltered Nonsheltered Sheltered Annual investment $1,000 $1,000 $1,000 Number of years to invest 40 40 40 Interest offered by account (as a %) 5 5 5 Effective interest for Rebecca (as a %) Interest factor from table Accumulated over 40 years $ $ $ Invested over 40 years $ $ $ Income tax bracket (as a %) 20 20 20 Income tax saved per year $ $ $ Income tax saved over 40 years $ Your findings Rebecca's friend's fondness for tax-sheltered accounts, because, according to this analysis, they effectively earn nonsheltered accounts. account is the best, in part, 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. 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 $ Next, Rebecca applies the interest factor from the table of to reach an accumulated total of $ Rebecca's Options After-Tax After-Tax Pretax Nonsheltered Sheltered Sheltered Annual investment $1,000 $1,000 $1,000 Number of years to invest 40 40 40 Interest offered by account (as a %) 5 5 5 Effective interest for Rebecca (as a %) Interest factor from table Accumulated over 40 years $ $ $ Invested over 40 years $ $ $ Income tax bracket (as a %) 20 20 20 Income tax saved per year $ $ $ Income tax saved over 40 years $ $ $