The following table provides information relating to three individuals who each plan to invest $4,500 per year, before tax, starting in 2012. Each individual's before-tax rate of return on a 10-year investment is 8%. Note that each has a different marginal tax rate today (Year 0). However, in 10 years, all are expected to have a marginal tax rate of 40%.

REQUIRED
(A) Compute the future value of the investment for each taxpayer assuming:
(i) The individual does not contribute to an RRSP but invests the after-tax proceeds of the $4,500 earned income in a tax-free savings account (TFSA).
(ii) The individual contributes to a self-directed RRSP and withdraws the amount in Year 10.
(B) Should each individual contribute to an RRSP or to a TFSA?

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Taxpayer Earned income Marginal tax rate (Year 0) Marginal tax rate (Year 10) Before-tax rate of return $65,000 45% 40% 8% $45,000 40% 40% 8% $25,000 27% 40% 896