Eriko earns $45,755 per year. She contributes 8% of her income to her 401(k) plan at work.
Question:
Eriko earns $45,755 per year. She contributes 8% of her income to her 401(k) plan at work. In her tax bracket, she would pay 37% of her income in state and federal income taxes.
A) How much is she saving this year on her taxes by making these 401(k) plan contributions?
B) Suppose that instead of contributing to her 401(k) plan, she decides instead to deposit the same amount of money to a Roth IRA. What would her tax savings be this year if the money went into the Roth instead?
C) Eriko has projected that her retirement account deposits will have grown to $318,902 by the time she retires. Assuming the same 37% tax rate, what would the after-tax value of her account be if the money is in a 401(k)? In a Roth IRA?
D) Suppose that Eriko’s company offers a 75% match up to 10% of salary, how would this affect her decision of whether to stick with the 401(k) or instead switch to a Roth IRA?
Expert Answer:
Yearly income is 45755 Tax rate 37 Contribution 8 of 45755 36604 a 401k plan contributions are deduc... View the full answer
