In 2018, Nina contributes 14 percent of her $111,000 annual salary to her 401(k) account. She...
In 2018, Nina contributes 14 percent of her $111,000 annual salary to her 401(k) account. She expects to earn a 9 percent before-tax rate of return. Assuming she leaves this (and any employer contributions) in the account until she retires in 20 years, what is Nina’s after-tax accumulation from her 2018 contributions to her 401(k) account? (Use Table 3, Table 4.) (Round your intermediate calculations and final answers to the nearest whole dollar amount.)
a. Assume Nina’s marginal tax rate at retirement is 30 percent.
b. Assume Nina’s marginal tax rate at retirement is 20 percent.
c. Assume Nina’s marginal tax rate at retirement is 40 percent.
Homework Answers
| Dear student, Use Future value factor from your table, it might be possible Minor difference in solution due to the rounding of FV factor. |
| Year | FV Factor @ 9% |
| 0 | 1.00000 |
| 1 | 1.09000 |
| 2 | 1.18810 |
| 3 | 1.29503 |
| 4 | 1.41158 |
| 5 | 1.53862 |
| 6 | 1.67710 |
| 7 | 1.82804 |
| 8 | 1.99256 |
| 9 | 2.17189 |
| 10 | 2.36736 |
| 11 | 2.58043 |
| 12 | 2.81266 |
| 13 | 3.06580 |
| 14 | 3.34173 |
| 15 | 3.64248 |
| 16 | 3.97031 |
| 17 | 4.32763 |
| 18 | 4.71712 |
| 19 | 5.14166 |
| 20 | 5.60441 |
| Contribution to 401(k) account (111000*14%) | $ 15,540 |
| Nina’s marginal tax rate at retirement is 30 percent | |
| Contribution to 401(k) account | $ 15,540 |
| Multiply: Future Value Factor @ 9% for 20 Years | 5.60441 |
| Future Value of Contribution to 401(k) account | $ 87,093 |
| Less: tax rate @ 30% on above value | $ 26,128 |
| Value Proceeds on account after tax | $ 60,965 |
| Nina’s marginal tax rate at retirement is 20 percent | |
| Contribution to 401(k) account | $ 15,540 |
| Multiply: Future Value Factor @ 9% for 20 Years | 5.60441 |
| Future Value of Contribution to 401(k) account | $ 87,093 |
| Less: tax rate @ 20% on above value | $ 17,419 |
| Value Proceeds on account after tax | $ 69,674 |
| Nina’s marginal tax rate at retirement is 40 percent | |
| Contribution to 401(k) account | $ 15,540 |
| Multiply: Future Value Factor @ 9% for 20 Years | 5.60441 |
| Future Value of Contribution to 401(k) account | $ 87,093 |
| Less: tax rate @ 40% on above value | $ 34,837 |
| Value Proceeds on account after tax | $ 52,256 |
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