Question 21.77

47. Suppose that when you turn 25, you are single and are in a 25% bracket for federal income tax and a 7% bracket for state and local income taxes. (In 2015 this corresponded to an income, beyond exemptions and deductions, of between $37,000 and $90,000.) This means that you pay an income tax rate (“marginal rate”) of 32% on part of your income (but a lower rate on the rest). Suppose that you commit to saving $100 per month toward retirement.

  1. How much will be in your fund at age 65 if you can get a steady return of 6% compounded monthly?
  2. How much will you pay in income tax on that $100?

47.

(a) $199,149.07

(b) $32—but you must also pay tax on that , and tax on that $10.24, and so forth. All in all, you pay .