Question

Scenario: You are 23-years-old and working in the marketing department of a medium-sized corporation. You are earning an annual salary of $45,000 paid every two weeks. Your employer provides a 401(k) plan, and matches employee contributions by 50% up to a maximum of 3% of your annual salary. You are in a 25% marginal tax rate. Read each of the statements below and indicate whether it reflects an advantage associated with investing in a tax-sheltered retirement account Statement An Advantage Not an Advantage You receive an instant return of 50% By being able to make contributions on a pre-tax basis, your tax liability is reduced. Some retirement plans also provide for matching contributions by their employers. The maximum dollar amount your employer will contribute to your 401(k) account this year is Assume that you contribute 7 of your gross income to your 401(k) account. How much will you contribute annually and per pay-period to your retirement account? $3,150 and $525, respectively O $3,150 and $121, respectively $135,000 and $131, respectively 5525 and $158, respectively $3,150 and $263, respectively Given your employer's contribution matching program, a total of will be deposited into your retirement account each pay period. The actual tax savings for the employee from their portion of the contributions will be in income taxes per year. (Round all dollar amounts to the nearest whole dollar. Do not round intermediate calculations.)

Answer 1

Tax liability being reduced is an advantage.

Maximum amount the employer will contribute this year is 3% of $45,000 = $1350

My annual and per pay contribution to the retirement account is $3150 and $121 respectively.

A total of $173 will be deposited to the retirement account each pay period.

Actual tax saving for employee per year will be $787.

Value of retirement account when employee is-

• 33 years = $195
• 43 years = $303
• 53 years = $362
  Contribution each pay period : Employee contribution = $121. Employer's contribution = 1350 = 112.5 each moth 112.5 = 26016 x2 = 52.3 • 12 4.3 weeke "Cultivation of mind should be the ultimate aim of human existence." -B.R.Ambedkar Total contrileutian = 12 1+52 = $173/pay perved
  
  Tan to be paid annually: 25 % x $ 45,000.= $ 11,250 Annual employee contribution to 401(k): $315o. Tan will be paid on 45,000 - 3150 = $41,850 Tan actually paid annually will be 25%, * $ 41,850 = $10,463.54 10,463 Tan savings = $ 11,250 - $ 10,463 = $ 787 / year
  
  • Annual contribution = $3150 (7% of 45,000). Per-pay period : Annical salary = $5,000 = 3750 /month Mouths Assuming there are 4.3 weeks in a month, per week = 872.09 Salary is paid every 2 weeks = 1744. 18 Hol of 1744,18 =$22:09 121.