Martha Stewart Earns $4,000 and She Wants to Save It

question 30

Essay

Martha Stewart earns $4,000 and she wants to save it for retirement,which is 10 years away.She can either save it in a taxable account or put it into a Roth IRA.Suppose that Martha can receive an annual rate of return of 8 percent and her marginal tax rate is 25 percent.By the time she reaches retirement,how much money would she have in either option?
NOTE: Martha has to pay tax on the $4,000,so she cannot put the full amount into either the taxable account or the Roth.

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Definitions:

Commercial

Pertaining to business activities, transactions, or establishments primarily focused on profitability.

Necessary Control

Essential mechanisms or systems required to regulate the operation of machines, processes, or systems to achieve desired outcomes.

Protection Components

Devices or systems designed to protect electrical circuits or equipment from damage due to overcurrent, overvoltage, or other electrical faults.

Motor Starter

A device that combines a contactor with overload protection to safely start and stop a motor.