Question

In 2019, Nina contributes 12 percent of her $125,000 annual salary to her 401(k) account. She expects to earn a 5 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 2019 contributions to her 401(k) account? (Use Table 1, Table 2.) (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

Problem 13-55 Part a

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.

Answer 1

Ans:

A). Assume Nina Marginal tax rate at retirement is 30%,

Particulars	Amount($)
Before Tax contribution (125,000*12%)	15,000
Times Future Value factor{5% for 20 years)	2.6533
Future Value of Contribution	39,799.50
Less: Taxes Payable from Distribution (30% of 39,799.50)	11,939.85
After Tax proceeds from distribution	27,859.65

B). Assume Nina Marginal tax rate at retirement is 20%

Particulars	Amount($)
Before Tax contribution (125,000*12%)	15,000
Times Future Value factor{5% for 20 years)	2.6533
Future Value of Contribution	39,799.50
Less: Taxes Payable from Distribution (20% of 39,799.50)	7,959.90
After Tax proceeds from distribution	31,839.60

C). Assume Nina Marginal tax rate at retirement is 40%

Particulars	Amount($)
Before Tax contribution (125,000*12%)	15,000
Times Future Value factor{5% for 20 years)	2.6533
Future Value of Contribution	39,799.50
Less: Taxes Payable from Distribution (40% of 39,799.50)	15,919.80
After Tax proceeds from distribution	23,879.70