A 20-year-old starts his first job at $20 per hour. He works full time, i.e., 40 hours
Question:
A 20-year-old starts his first job at $20 per hour. He works full time, i.e., 40 hours a week, and receives a biweekly paycheck. We assume he receives 26 paychecks in a year. We assume $1200 pre-tax health insurance, and he max out $ 19500 in his 401(k), and Amazon gives a 4% 401(k) company match. We assume he is a rational risk aversive investor who wants to pay the least tax and get a saver’s credit refund.
Note that in 2021, for a single filler, the standard deduction is $12500. IRS website shows if an individual is over the age of 18, not a full-time student, or no one claims filler as a dependent by another taxpayer and if AGI is not more than $19,750 and you are fully invested on 401(k) one can get up to $1000 saver’s credit.
Make sure you keep his AGI at 19750 or less using other tax shelters like IRA or HSA. What are his net pay and net worth? Assume he never gets any pay raise until he is 40 years old. What will be his net worth?
