(a) How will this change in income affect the family’s emergency fund needs?
(b) How much should they save annually for the next three years if they want to build up Joseph’s college fund to $20,000, assuming a 3 percent rate of return and ignoring taxes on the interest?
(c) Given their 25 percent marginal tax rate, what is the Hernandezes’ after-tax return on their savings and how would that affect the amount they would need to save each year?
(d) What savings options are open to the Hernandezes that could reduce or eliminate the effects of taxes on their savings program?
The Hernandez family is experiencing some financial pressures, even though the couple has a combined income of $66,000. Also, their eldest son, Joseph, will start college in only three years. Maria is contemplating going to work full time to add about $25,000 to the family’s annual income.