Q2A.i. Answer: Correct. I think it should be “incorrect”.
How could after-tax return in a TAXABLE account be any better (higher) than return a TAX-EXEMPT account, all else equal, even if (as in this case) there is a tax-loss harvesting advantage?
Does anyone know why the answer should be “correct”?
Both accounts are funded with after tax dollars in the question. My understanding is that, given the “substantial losses” Juan experienced, at least a portion of that can be offset by the tax loss function in his taxable account (since the guy is anticipating retirement, it’s fair to assume he has other income coming in the door to apply these losses to).
Thanks! Sorry should’ve been more clear. The two accounts are funded with after-tax dollars (given in question), as mildeng pointed out above as well. So the two accounts start off from the same ground. Is the answer overly simplistic (like some other places in the curriculum, intentionally)?
they asked about return on the account. Given you encountered a loss on the Taxable account - the total amount of returns would be higher because of the losses.