Question

1. identify the benefits of after - tax investing.

a. funds deposited in after - tax savings accounts may be liquidated without paying tax on the deposit.
b. funds deposited in investment accounts may earn gains, and long - term capital gains are taxed at lower levels.
c. post - tax investing guarantees an investor a positive rate of return
d. an after - tax savings account, not earning interest or gains, will not be taxed upon distribution.

Explanation:

• Option a: After - tax deposits are made with already - taxed money. So when liquidated, no tax on the deposit amount is paid.
• Option b: Long - term capital gains (for assets held more than one year) have lower tax rates (e.g., 0%, 15%, 20% depending on income) compared to ordinary income tax rates.
• Option c: Post - tax investing does not guarantee a positive return. Market risks still exist.
• Option d: If an after - tax account has no earnings (interest or gains), there is no additional income to be taxed upon distribution.

Answer:

a. Funds deposited in after - tax savings accounts may be liquidated without paying tax on the deposit.
b. Funds deposited in investment accounts may earn gains, and long - term capital gains are taxed at lower levels.
d. An after - tax savings account, not earning interest or gains, will not be taxed upon distribution.