There are some exercises envolving TDAs and TEAs where they provide us with “pre-tax income” (for example $5k) which will be invested in different portfolios. In these calculations, in order to calculate the FV of TEAs the provided pre-tax income is diminished by the current tax rate on income. So, for example, $5k would be invested into the TDA and $4k on the TEA (considering 20% tax)
In other exercises, they give us a certain “amount to be invested in TDAs, TEAs, accounts taxed annually, etc”. On these exercises, they assume the same “amount” is being invested in both TDA or TEA. In other words, they do not apply the current tax in the case of the TEA, so the amount invested ends up being the same ($5k for both). This causes some confusion related to recognizing when should I apply the tax rate so that we’re investing AFTER-TAX funds into the TEA.
While Im not understanding your question completely,when one puts their money in a tax deferred account, (like a 401k) while they put the entire amount in before its taxed, in essence, it will eventually be taxed, so what they have to use is basically (1-t) the pre tax amount which is similar to the tea.
If still unsure, please share the specific problems that you feel are conflicting
this is not always true, only if current tax = future tax
Anyway, what i’m trying to say is that in some examples, the initial investment amount (for example $5k) is used to calculate the future value in both cases (TDA and TEA), without applying the current tax rate for the TEA. (you can see this on Schweser Book2 page )
In the next exercise, however, the amount invested in the TEA is reduced to account for current tax rates over the initial investment amount.