Mark, 25, plans to put $6,500 per year in his RRSP until age 65. He plans to invest the money in an index fund that is expected to earn a rate of return of 8% per year. When he retires at 65, he will withdraw the money in one lump sum, and pay taxes at the rate of 45%. His friend recommends that he should put his money in a TFSA, invest in the same index fund, and will end up with more money at 65. His marginal tax rate before retirement is 30% throughout.

Required:

1. How much money will he have at 65, after taxes, if he invests in the RRSP?
2. How much money will he have after taxes if he invests in the TFSA?

Answer rating: 100% (QA)

Option I If he invests in RRSP Period of investment 40 years 652540 Annual Investment 6500 Value of fund after 40 years Value of fun after 40 years 8 ... View the full answer