   Chapter 18.III, Problem 30RE ### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

#### Solutions

Chapter
Section ### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

# BUSINESS DECISION: INVESTING YOUR TAX SAVINGSYou are a manager for Vector International. You cam $50,000 per year and are in the 28% federal income tax bracket. Each year you contribute$2,500 tax free to your individual retirement account. IRA. The account cams 8 % annual interest. In addition, the amount of tax that you save each year by making these "pre-tax” contributions is invested in a taxable aggressive growth mutual fund averaging 15% .a. How much tax do you save each year by making the retirement fund contributions?b. How much will the retirement fund be worth in 30 years?c. Although the income from this investment is taxable each year, how much will the “tax savings” fund be worth in 30 years?

(a)

To determine

To calculate: The amount of tax saved every year by making the retirement fund contributions in 28% tax bracket. The total earnings is $50,000. The tax free is$2,500 with the interest rate of 8% in retirement account and the aggressive growth mutual fund is averaged at 15%.

Explanation

Given Information:

The total earnings is $50,000 in 28% tax bracket. The tax free is$2,500 with the interest rate of 8% in retirement account and the aggressive growth mutual fund is averaged at 15%.

Formula Used:

The amount of tax saved every year is calculated by the formula:

Tax savings = Amount of tax free contribution × Income tax bracket

Calculation:

Consider the provided information,

The total earnings is $50,000 in 28% tax bracket. The tax free is$2,500 with the interest rate of 8% in retirement account and the aggressive growth mutual fund is averaged at 15%.

Since, the taxable income is defined as the income to which tax rates are functional in order to discover the total amount of tax payable for the year

(b)

To determine

To calculate: The amount of retirement fund in 30 years if the total earnings is $50,000 in 28% tax bracket. The tax free is$2,500 with the interest rate of 8% in retirement account and the aggressive growth mutual fund is averaged at 15%.

(c)

To determine

To calculate: The amount of tax saving fund in 30 years, if the total earnings is $50,000 in 28% tax bracket. The tax free is$2,500 with the interest rate of 8% in retirement account and the aggressive growth mutual fund is averaged at 15%.

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