8. (TCO A) You can tax shelter only one-half of your retirement savings. You want to invest one-half of your savings in bonds and one-half in stocks. How much of the bonds and how much of the stocks should you allocate to the tax sheltered investment? (Points : 5)
Stock and bond investments should be equally invested in both tax sheltered and non-sheltered accounts.
You should place all the stocks in tax sheltered accounts and all the bonds in non-sheltered accounts.
You should place all the bonds in tax sheltered accounts, and all the stocks in non-sheltered accounts.
It makes no difference how you allocate your stock and bond investments among tax sheltered and non-sheltered accounts.
To determine how much of the bonds and stocks should be allocated to the tax sheltered investment, you need to consider that you can only tax shelter one-half of your retirement savings.
Option 1 suggests that you should equally invest in both tax-sheltered and non-sheltered accounts. Since you can only tax shelter one-half of your savings, this option is not correct.
Option 2 suggests placing all the stocks in tax sheltered accounts and all the bonds in non-sheltered accounts. Since you can only tax shelter one-half of your savings, this option is not correct either.
Option 3 suggests placing all the bonds in tax sheltered accounts and all the stocks in non-sheltered accounts. Since you can only tax shelter one-half of your savings, this option is also not correct.
Therefore, the correct answer is option 4: It makes no difference how you allocate your stock and bond investments among tax sheltered and non-sheltered accounts. Since you can only tax shelter one-half of your retirement savings, you can allocate the stocks and bonds in any way you prefer between the tax sheltered and non-sheltered accounts.