Sam Conner and Bill Pope live in different countries. In Conner’s country, there is a light capital gain tax regime. In Pope’s country there is a heavy capital gain tax regime. They both are building diversified portfolios that hold non-dividend-paying growth stocks, dividend-paying stocks, and coupon-paying bonds. They both have a buy-and-hold strategy. Which, if either, would probably benefit the most from a tax-deferred account (TDA)? A) Conner would benefit more than Pope. B) Pope would benefit more than Conner. C) Neither would benefit because tax-deferred accounts do little to enhance the returns of diversified portfolios. Your answer: B was incorrect. The correct answer was A) Conner would benefit more than Pope. Conner would benefit more. In a light capital gain tax regime, dividends and interest do not receive favorable tax-treatment. There would be an advantage to having them in the TDA. In the heavy capital gain tax regime, interest and dividends receive tax advantages. Take a look at pg. 315 of Schweser Book 3. A light capital gain tax regime has a favorable treatment of cap gains taxes, and a heavy capital gain tax regime does NOT have a favorable treatment of cap gains taxes. So the answer should be B correct?
schweser seems consistent
crap sorry i didn’t read carefully. they’re talking about dividends & interest.
This is a dicy question … I hate taxes… Let me try this - Popp --> Heavy capital gains tax --> Interest income , dividend - Favorable Connor --> Light Capital gains --> Capital gains – Favorable. Question is asking about …TDA account… FVIF = (1+r)^n (1-T) …TDA funds accrue tax free …capital gains accrue without paying any interim income… So maybe …Light capital gains is more favorable for TDA… Dividend paying stocks and coupon paying bonds do not benefit from the TDA account …IMO.