Assume that you have a client who is seeking your guidance on…
Question Answered step-by-step Assume that you have a client who is seeking your guidance on… Assume that you have a client who is seeking your guidance on retirement planning. Your client can either accumulate wealth by investing:A. $10,000 per year through a pretax salary deferral plan (like a 401(k)) for ten years, orB. Take the same $10,000 annual investment, invest it an after-tax investment, meaning that the $10,000 investment and resulting earnings are reduced by personal income taxes. Using the assumptions below, how much after-tax (SPENDABLE) money will your client have under each scenario after ten years? What conclusion can you draw from this exercise? How much in additional annual after-tax contributions would your client have to make under the after-tax scenario to equal the spendable pretax scenario after ten years of investing? AssumptionsClient’s tax bracket: 40% This assumes a 37% Federal and a 3% State tax rate.Annual salary deferral into pretax plan: $10,000Annual after-tax deposits into taxable investment account: $6,000 = [$10,000 * (1- Client’s_tax_bracket) or $10,000 * 60%Annual Return on Assets 8% Assume for both scenarios that money is invested in single-payment amounts at the beginning of the year and that there are not long-term gains or deferred capital gains. While unrealistic, we are doing this to simplify your calculations.Please ignore long-term gains or capital gains treatment for now as this will overcomplicate the problem. But if you can’t help yourself, consider 80% deferred capital gains, 15% long-term gains and 5% short-term gains. * I have a template but unable to upload it.Image transcription textFile Home Insert Draw Page Layout Formulas Data Review View Help Arial v 9 A” A ab Wrap TextAutoSum Number Conditional Format as Cell Insert Delete Format Fill Paste E Merge & Center $ ~ %” -00 So Formatting Table ~ Styles v Clear Fil Undo Clipboard Font Alignment Number Style… Show more… Show more Business Finance FI 422 Share QuestionEmailCopy link Comments (0)
