1. Both tax deferred and tax exempt
only superior if initial tax rates are
accounts provide a tax advantage in
higher than tax rates at the end of the
allowing tax free compounding while
Incorrect
deferral period.
funds are held in the account.
However, a tax deferred account is
Candidate discussion: If initial and end
superior for after-tax wealth
of period withdrawal tax rates are the
maximization because it provides an
same, the two account types produce the
same after-tax ending value. The TEA
initial tax deduction.
pays taxes at the initial rate and the TDA
at the ending rate. If initial rates are
lower, the TEA is superior. If initial rates
are higher, the TDA is superior.
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