A complicating feature of the tax code is that interest dividends are taxed at a higher rate than capital gains for individuals. A lower capital gains tax reduces the desirability of investing in assets with high expected capital gains within a tax-deferred account. The reason is that in a tax-deferred account investment earnings are taxed at the ordinary income tax rate even if some of the earnings are from capital gains. Thus, when deciding to save through an account with tax-deferred earnings, one must compare the advantage of deferring tax versus the disadvantage of potentially paying a higher tax rate on some of the earnings. To illustrate, suppose that Travis is going to retire in 10 years, the annual before-tax rate of return is 10 percent, one-half of this return is from capital gains, his income tax rate is 30 percent, and his capital gains tax rate is 20 percent. Will Travis have more money at retirement by saving $1,000 of before-tax wages in a qualified account or will he have more money by saving in an account with no tax benefits?

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Answer As per given details please refer below answer Travis has invested 1000 for 10 years then he ... View the full answer