Question

Solomon contributed $20,000 to his RRSP at the time when his marginal tax rate was 52%.At retirement,which he anticipated being 20years from now,he expects to continue to have a marginal tax rate of 52%.Based on a discount rate of 5%,what is the present value of the amount of tax solomon will pay on a withdrawal of $20,000 from his RRSP in his first year of retirement ?

Answer 1

Withdrawal at end of year retirement = $20,000

Present value = 20,000 / (1+5%)^20 = $10,400

	Value at start of year	Returns	Value at end of year	Discount factor	Present value	Tax payment
1	20,000	5%	21,000	0.952	20000
2	21,000	5%	22,050	0.907	20000
3	22,050	5%	23,153	0.864	20000
4	23,153	5%	24,310	0.823	20000
5	24,310	5%	25,526	0.784	20000
6	25,526	5%	26,802	0.746	20000
7	26,802	5%	28,142	0.711	20000
8	28,142	5%	29,549	0.677	20000
9	29,549	5%	31,027	0.645	20000
10	31,027	5%	32,578	0.614	20000
11	32,578	5%	34,207	0.585	20000
12	34,207	5%	35,917	0.557	20000
13	35,917	5%	37,713	0.530	20000
14	37,713	5%	39,599	0.505	20000
15	39,599	5%	41,579	0.481	20000
16	41,579	5%	43,657	0.458	20000
17	43,657	5%	45,840	0.436	20000
18	45,840	5%	48,132	0.416	20000
19	48,132	5%	50,539	0.396	20000
20	50,539	5%	53,066	0.377	20000	10400

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