Question

In 2018, Nitai (age 40) contributes 8 percent of his $122,000 annual salary to a Roth 401(k) account sponsored by his employer, AY Inc AY Inc. matches employee contributions to the employee's traditional 401(k) account dollar-for-dollar up to 8 percent of the employee's salary. Nitai expects to earn a 8 percent before-tax rate of return Assume he leaves the contributions in the Roth 401(k) and traditional 401(k) accounts until he retires in 20 years and that he makes no additional contributions to either account. What are Nitai's after-tax proceeds from the Roth 401(k) and traditional 401(k) accounts after he receives the distributions, assuming his marginal tax rate at retirement is 30 percent? (Use Table 3, Table 4.) (Round your intermediate calculations and final answers to the nearest whole dollar amount.) Roth 401(k) Traditional 401(k) After tax proceeds from distribution

Answer 1

Ans-Nitai's after tax proceeds from the Roth 401 (k):-

Since distributions from Roth 401 (k) is not taxable, Nitai's accrual on his 2018 contribution to his Roth 401 (k) plan is:-

=($122,000*8%) * (4.6610)

=$9,760* 4.6610

=$45,491.36

His marginal tax rate when he retires does not have an effect on the after-tax earnings of the distribution as the distributions at retirement from Roth 401 (k) plans are not taxable.

Nitai's after tax proceeds from the traditional 401 (k) accounts:-

Nitai's employer AY Inc. contributed one dollar for every dollar that Nitai contributed to his Roth 401 (k) account.  So, AY inc. contributed $9,760 to his traditional 401 (k) account and these contributions are fully taxable:-

Marginal tax rate is given -30%

Therefore, Nitai's after tax proceeds from traditional 401 (k) plan is:-

=$9,760 *(4.6610)* (1-30%)

=$45,491.36* 0.70

=$31,844

	Roth 401 (k)	Traditional 401 (k)
After Tax Proceeds From Distributions	$45,491	$31,844