1. Use the following data to respond to the questions:

• The taxpayer earns pre-tax compensation of $10,000
• Unless otherwise specified, the taxpayer always has an ordinary tax rate of 40%.
• Unless otherwise specified, the taxpayer always has a capital gains tax rate of 20%
• The taxpayer can earn an annual pretax rate of return on taxable bonds, stocks and tax exempt bonds of 7%.
• The return to stocks is comprised entirely of stock price appreciation; no dividends are paid.
• The taxpayer reinvests all returns in the same investment earning the same pretax rate of return for 40 years.
• At the end of 40 years, the taxpayer converts the investment into cash.

Investment type	Total after-tax dollar accumulation in 40 years	Annualized after-tax rate of return over the 40 year investment period
Fully taxable bonds
Fully taxable bonds in an ordinary 401k
Fully taxable bonds in an ordinary 401k, ordinary tax rate at withdrawal=20%, capital gains tax rate=10%
Fully taxable bonds in a Roth 401k
Stocks
Stocks in an ordinary 401k
Stocks in an ordinary 401k, , ordinary tax rate at withdrawal=20%, capital gains tax rate=10%
Stocks in a Roth 401k
Tax exempt bonds