Asked by Kayelyn Rooney on May 21, 2024
Verified
Jackson inherited $50,000 at the age of 42 and had a decision to make.He could deposit the money in a tax -deferred account that pays 3.375% compounded quarterly or he could deposit the money in a taxable account with the same interest rate and compounding period.Jackson's current tax bracket is 25%,which means he will have to pay taxes on the interest earned each year in the taxable account.How much money could Jackson have saved after 25 years if his decision was to deposit the inheritance into the taxable account?
Tax-Deferred Account
A savings account or investment option where taxes on the principal and/or earnings are delayed until the investor withdraws the funds.
Taxable Account
An investment account in which the earnings are subject to income tax.
Compounded Quarterly
The process of adding interest to the principal sum of a loan or deposit, calculated every three months.
- Compare the financial outcomes of tax-deferred versus taxable investment accounts.
Verified Answer
MT
Learning Objectives
- Compare the financial outcomes of tax-deferred versus taxable investment accounts.
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