Kate Can Invest $4,000 of After-Tax Dollars (AT$)directly in a Taxable

question 45

Multiple Choice

Kate can invest $4,000 of after-tax dollars (AT$) directly in a taxable bond outside an IRA, or she can contribute the $4,000 to a nondeductible IRA and invest in the same bond through the IRA vehicle. In either case the bond yields an annual 3% before-tax rate of return (BTROR) . Kate's marginal tax rate is 15%, and she expects it to remain so for the entire investment horizon of 25 years. What is the after-tax accumulation for the "bond outside the IRA" after 25 years?

• A)$5,585
• B)$7,507
• C)$8,375
• D)None of the above.

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Definitions:

527s

Tax-exempt organizations created primarily to influence the nomination, election, appointment, or defeat of candidates for public office, named after the section of the U.S. tax code that governs their operations.

501(c)s

A broad category of nonprofit organizations operating under the U.S. tax code section 501(c) that enjoy tax-exempt status, including charitable organizations, civic leagues, and social welfare organizations.

Hard Money

Refers to currency backed by a physical commodity or with intrinsic value, and in politics, to legally specified campaign contributions.

Soft Money

Political contributions made in such a way as to not be subject to federal regulations or limits, often channeled through political parties for "party-building" activities.