Exam 18: Taxes and Investment Planning

Will invests $20,000 of after-tax dollars (AT$) in tax-exempt municipal bonds which yield 5% per year.He reinvests the interest in the same bonds and holds the bonds for two years.Will's marginal tax rate is 25%.What is his after-tax accumulation at the end of two years?

The formula for the after-tax accumulation (ATA) for the Exempt Model is

A single taxpayer earns a salary of $6,000.If he is taxed with a 10% flat rate,he has $5,400 of after-tax dollars available to invest.

Willa is considering receiving either $20,000 of current salary or $30,000 of deferred compensation in two years.Her current tax rate is 35%,but she expects her tax rate to be 25% two years from now.Willa can invest any after-tax current salary at a 6% ATROR.If she receives the current salary and invests the after-tax amount,her investment will accumulate to

Vidya can invest $5,000 of after-tax dollars (AT$) directly in a taxable bond outside an IRA,or he can contribute the $5,000 to a nondeductible IRA and invest in the same bond through the IRA vehicle.In either case the bond yields an annual 5% before-tax rate of return (BTROR).Vidya's marginal tax rate is 15%,and he expects it to remain so for the entire investment horizon of 20 years.What is the after-tax accumulation for the "bond inside the IRA" after 20 years?

Cooper can invest $10,000 after-tax dollars in a taxable bond either outside or inside a traditional nondeductible IRA.He will hold the investment for ten years.The bond yields 6% before taxes and Cooper's marginal tax rate is 33%.If he invests directly in the bond,he will withdraw an amount of interest each year sufficient to pay taxes and leave the remaining interest in the investment.What are the after-tax accumulations in the bond and in the IRA? Cooper will not be subject to the 10% penalty tax when the IRA withdrawal occurs.

The C Corporation Model is a variation of the

The Pension Model has all of the following characteristics except for

Common examples of the Pension Model include all of the following except for

In the Current Model

In the Deferred Model

Savings accounts and money market funds are examples of investments taxed under the Current Model.

In the Current Model,investment earnings are taxed as they are earned.

The Current Model most closely describes a flow-through entity while a variation of the Deferred Model describes a C corporation.

Which of the following characteristics belong(s) to the Exempt Model?

The difference between the BTRORs of fully-taxable and tax-favored investments is called

Sophia's employer is considering paying her either $20,000 of current salary or $40,000 of deferred compensation in 12 years.Her employer's current tax rate is 34%,but the employer expects its tax rate to be 25% 12 years from now.The employer's ATROR is 11%.If the employer waits and pays the deferred compensation,its after-tax deferred compensation expense projected to Year 12 is

Ken invests $10,000 in a deductible IRA which he will hold for 10 years.His current tax rate is 30% and he estimates that his tax rate will remain the same upon withdrawal.He will not be subject to the 10% penalty tax.Assume that the IRA will yield a before-tax return of 10%.What is the after-tax accumulation?

Flow-through entities include all of the following types of entities except

The Flow-Through Model used for S corporations and partnerships is an application of the