FORMULAS

APPENDIX -- Part II

A. Annual Retirement Ineone

Definition of Symbols

RI(I), RI (II) and RI(III): annual retirement income, after tax, for Cases I, II and III, respectively.

ta and

: pre-retirement and post-retirement marginal income tax rates, respectively.

i: annual rate of investment earnings before tax.

j: annual rate of investment earnings after tax,i.e., (1−t)°1. accumulations of contributions to retirement age at rates i and j, respectively.

: sum of contributions to retirement age, without interest. continuous life annuity value for retirement age m at interest rate 1.

complete expectation of life for retirement age .

APPENDIX -- Part II (eon.)

B. Amount of Accumulated Contributions for a Years, After Tax. (1)

and o(); accumulation of contributions for a years at rates (1-t).1.

i and j, respectively, where j =

C: sum of contributions for a years without interest.

C. Analysis of Effect of Lower Post-Retirement Marginal Tax Bate Than Pre-Retirement Marginal Tax Rate.

A lower post-retirement marginal tax rate produces additional income that can have three elements which are related to

(1) investment income earned during retirement years,
(ii) investment income earned prior to retirement, and
(iii) contributions.

In the following formulas,

I, II, and III

Ia, II and III

r

a

r

represent the retirement income for Cases I, II and III, respectively, where t is less than t ̧• represent the retirement income for Cases I, II and III, respectively, where t t

The sum of Items (i), (ii) and (iii),i..., (III- III),

In comparing Cases I, II and III, only Items (ii) and (iii) become involved.

TAX PENALTY Arising from Taxation of Contributions and Investment Income at time of Input (instead of at Time of Output) for EmployOOS Covered by an Employer-Instituted Plan.

Are Pre-Ret. Marg'l Tax Rate minus Post-Ret, Marg'l Tax Rate: 05

Pre-Ret, Marg'l Tax Rate minus Post-Ret, Marg'l Tax Rate: 5%

Pre-Ret, Marg'l Tax Rate minus Post-Ret, Marg'l Tax Rate: 10%

25

35

45

23.5" 29.8" 36.0"

Pre-Ret. Marg'l Tax Rate minus
29.8% 36.9% 43.8% 35.3% 43.8% 51.8%
26.8" 33.6" 40.1" 30.9" 39.2" 46.6"
26.3" 33.9" 41.0"

Post-Ret. Marg'l Tax Rate: 15%

TAX PENALTY Arising from Taxation of Contributions of Employees at Time of Input (instead of at Time of Output) for Employees Covered by an Employer-Instituted Plan

Are Pre-Ret. Marg'l Tax Rate minus Post-Ret, Marg'l Tax Rate: 05

15.7% 22.7% 29.9%
14.4" 21.0" 27.5"
12.6 18.6" 24.4"
10.2" 15.2" 20.2"

17.3% 25.2% 33.3% 16.1 23.6" 31.0" 14.3 21.1 27.9" 11.7" 17.6* 23.3"

Pre-Ret, Marg'l Tax Rate minus Post-Ret. Marg'l Tax Rate: 10%

Pre-Ret, Marg'l Tax Rate minus Post-Ret, Marg'l Tax Rate: 15%

APPENDIX -- Part III (con.)

Tablo (C)

AIN from Taxing Contributions and Investment Income at
One Time at End of Accumulation Period instead of Tax-
at Time of Input, as Percentage of Gross Accumulation
(Ratio of (a) excess of after tax Case III accumulation
over after tax Case I accumulation to (b) before tax
Case III accumulation.)

Period Contributions Made and Accumulated
5 ro 10 yrs
20 yra

30 yrs Lo vrs

Scale A Contributions (20% MTR)--5.5% Interest

Com

meno

ing

Age

25

555

2.15"

4.29"

8.67

12.93% 17.42%
13.17"

Scale B Contributions (30% MTR)--5.5% Interest

5.51"

5555

Seale B Contributions (30% MTR)--7.0% Interest

3.54% 6.92% 13.09%