Question
Tax-Sheltered Returns. Ashley Travis, of Harrisburg, Illinois, is in the 25 percent marginal tax bracket and is considering the tax consequences of investing $2,000 at
Tax-Sheltered Returns. Ashley Travis, of Harrisburg, Illinois, is in the 25 percent marginal tax bracket and is considering the tax consequences of investing $2,000 at the end of each year for 30 years in a tax-sheltered retirement account, assuming that the investment earns 8 percent annually.
(a) How much will Ashley's account total over 30 years if the grow in the investment remains sheltered from taxes? N 30 I/Y 8 PV 0 PMT -2,000 FV CPT
(b) How much will the account total if the investments are not sheltered from taxes? N 30 I/Y 8 x (1 - 0.25) = 6 PV 0 PMT -2,000 FV CPT
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