A 25

-

year

-

old with a dual BS/MS engineering degree accepts a

job with a national firm which has a required retirement age of

65. For simplicity, assume that the engineer stays through

retirement and that the average annual salary over the next 40

years is $96,000. The firm offers a

2

-

for

-

1 401(k) matching plan

(up to a maximum employee contribution of 6%). The chosen plan

offers a 3% expected rate of return after subtracting fees.

What will the engineer have in the plan at retirement?

What is the after

-

tax difference in income with and without the 401(k)

deduction?