Finance School of management The tax-deferred plan The ordinary saving plan You face a tax rate of 20% You have to pay 200 in and interest is 8% You are 30 years before taxes. The remaining $800 retirement and contribute go into ordinary saving plan. S1000 to IRAs. Your total and interest earnings will be before-tax cum. account taxed so after-tax int rate will be (1-0.2)*8%=64 $1000*1.0830=$10,063 The cum. account will be u You will pay taxes $800*1.06430=$5,14445 0.2*$10063=$2012 You will be left with $8.050 uesTc 1515 Finance School of Management u The tax-deferred plan u You face a tax rate of 20% and interest is 8%. u You are 30 years before retirement and contribute $1000 to IRAs. Your total before-tax cum. account will be: $1000*1.0830 =$10,063 u You will pay taxes: 0.2*$10,063=$2,012 u You will be left with $8,050 u The ordinary saving plan: u You have to pay $ 200 in taxes. The remaining $800 go into ordinary saving plan, and interest earnings will be taxed, so after-tax int. rate: (1-0.2)*8%=6.4% u The cum. account will be $800*1.06430=$5,144.45