# 2009 CFA Exam #1 IPS

“Briscoe expects a tax rate of 20% to apply to the Tracys’ withdrawals from the investment account.”

But then: “They plan to pay off their mortgage and associated taxes by withdrawing 100,000 from their portfolio upon retirement.”

And in the answer this 100,000 is withdrawn from the portfolio without paying 20% taxes. In other words, instead of having to withdraw 100,000/(1-.2)=125,000 from the investment account to pay the \$100,000 mortgage, they just pull out 100,000.

Why isn’t that subject to 20% tax?

read the actual sentence please, slowly … especially the part highlighted in BOLD then decide

If they retire at age 60, they plan to pay off their mortgage and associated taxes by withdrawing CAD 100,000 from their portfolio upon retirement.

OK. So the taxes are baked into the \$100,000. Does that mean that the mortgage is a pre-tax item? Expenses have to be pre-tax in order for the return we are calculating to be pre-tax, right?

I just feel like it isn’t clear from the sentence. Of course you are right; I just don’t want to make this mistake on the test. With only 9-10 minutes to do the calcs, it could happen.

Thank you for your help.

since the tax-inclused pay off amount for the mortgage of 100K is taken off the pre-tax net investable assets - and the expenses - income is converted to a pre-tax number - you get a pre-tax return requirement