Exam 21: Taxes, Inflation, and Investment Strategy

You want to minimize your current tax bill by maximizing your contributions to your ________.

Shawn decides to put $5,000 into his retirement plan at the age of 22. He will continue to invest the same amount for a total of 16 years and then stop contributing. Assume 10% annual return. How much money will Shawn who will be 38 years old at that point, have in his retirement plan when he is ready to retire at age 62? Assume the same 10% annual return.

In 2018, the income cap on Social Security taxes was set at ________ with an exemption of ________.

A nonprofit organization offers a 5.5% salary contribution to John's 403b plan regardless of his own contributions, plus a matching 5.5% when John contributes 5.5% of his salary. John makes $66,000 a year. What is John's effective salary reduction if he is in the 24% tax bracket?

An insurance company plans to sell annuities to investors. Based on actuarial calculations, an investor has a 18-year life span, and he wants a $40,000-per-year annuity, payable at the end of each year. If the insurance company uses a 3.78% assumed investment rate, how much should the annuity cost?

No taxes are paid on withdrawals made during retirement from a ________.

Withdrawals from a traditional retirement plan prior to age ________ are taxable and must pay a ________ tax penalty.

Which one of the following represents local consumption smoothing? I. Saving during your working years for retirement II. Borrowing money to buy a car III. Putting off a vacation for a year until you can afford it

A decrease of 1% in both your tax exemption and your income tax rate would, on net, ________.

A tax shelter that allows for tax-exempt saving for higher education is called a ________.

A safe driver who drives faster as a result of purchasing collision car insurance would be an example of the ________ problem.

An investor who is in a 35% federal tax bracket and a 5% state bracket buys a 6.5% yield corporate bond. What is his after-tax yield? (Assume that federal taxes are not deductible against state taxes and vice versa).

The tax effect of a traditional retirement plan is to ________ taxes.

Contributions to a ________ are not tax deductible.

The practice of trying to buy life insurance upon diagnosis of a terminal illness is an example of ________.

It would be costly to provide wage insurance because of the ________ problem.

As you get older, you decide to reduce the risk level of your retirement portfolio because your portfolio is nearing your minimum acceptable level. As the portfolio does better, you reallocate funds into higher-risk categories. You are practicing a form of ________.

You earn 6% on your corporate bond portfolio this year, and you are in a 24% federal tax bracket and an 9% state tax bracket. Your after-tax return is ________. (Assume that federal taxes are not deductible against state taxes and vice versa).

In planning for retirement, an investor decides she will save $2,000 every year for 25 years. At a 7% return on her investment, how much money will she have at the end of 25 years?

A nonprofit organization offers a 5% salary contribution to John's 403b plan regardless of his own contributions, plus a matching 5% when John contributes 5% of his salary. John makes $56,000 a year. He is in the 24% tax bracket. What is John's total cost of his 5% contribution net of taxes?