Tilly would like to invest $ 2,500 in before tax income each year in a retirement account or in alternative stock investments. Tilly likes the alternative investments because they provide her with more flexibility and a potentially higher return. Tilly would like to retire in 30 years. If she invests money in the retirement account, she can earn 7% annually. If she invests in alternative stock investments, she can earn 9% annually. Tilly is in the 25 percent marginal tax bracket.
a. If Tilly invests all her money in the retirement account and withdraws all her income when she retires, what is her income after taxes?
b. If Tilly invests all her money in alternative stock investments, what are her savings at retirement?
c. Assuming a capital gains tax rate of 15%, what is the after tax value of the alternative stock investment?
d. Should Tilly invest her money in the retirement account or in the alternative stock investments?

  • CreatedOctober 13, 2015
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