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Homework Answers
Answer:
a. Assume Nina’s marginal tax rate at retirement is 30 percent.
| Before-tax contribution | $11,520 |
| Future value factor | 4.66096 |
| Future value of contribution | $53,694 |
| Taxes payable on distribution | ($16,108) |
| After tax proceeds from distribution | $37,586 |
b. Assume Nina’s marginal tax rate at retirement is 20 percent.
| Before-tax contribution | $11,520 |
| Future value factor | 4.66096 |
| Future value of contribution | $53,694 |
| Taxes payable on distribution | ($10,739) |
| After tax proceeds from distribution | $42,955 |
c. Assume Nina’s marginal tax rate at retirement is 40 percent.
| Before-tax contribution | $11,520 |
| Future value factor | 4.66096 |
| Future value of contribution | $53,694 |
| Taxes payable on distribution | ($21,478) |
| After tax proceeds from distribution | $32,216 |
Explanation :
Before-tax contribution = 0.08 x $144,000 = $11,520
Future value factor = 4.66096 (from FV table)
Future value contribution = $11,520 x 4.66096 = $53,694
Tax payable = $53,694 x Tax rate
After tax proceeds = Future value contribution - Tax Payable
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