Hi, I am having a bit of trouble in the following question for Reading 11 EOC Q17. Below is the question.
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The way I see it, problem says contribution limits do not affect the choice of account so tax exempt account will be better since they are not taxed when withdrawal takes place while TDA will be taxed at 30% upon withdrawal. What did I miss?
The answer sheet says that TDA future accumulation is (1 + r)n(1 - 0.30) and tax exempt future accumulation is (1 + r)n(1 - 0.40). I think TDA formula is correct but how about the tax exempt? Isn’t the formula supposed to be non-taxable ; (1 + r)n? Thanks for your help and time!
Thanks for the reply! But the problem is saying ‘Assuming contribution limits do not affect Newman’s choice of accounts.’ I interpreted contribution limit as no tax. Maybe it’s referring to contribution amount? Haha silly me…