1. n 2017, Nina contributes 11 percent of her $126,000 annual salary to her 401(k) account....

1. n 2017, Nina contributes 11 percent of her $126,000 annual salary to her 401(k) account. She expects to earn a 10 percent before-tax rate of return. Assuming she leaves this (and any employer contributions) in the account until she retires in 25 years, what is Nina’s after-tax accumulation from her 2017 contributions to her 401(k) account? (Use Table 1, Table 2, Table 3, Table 4.) (Round your intermediate calculations and final answers to the nearest whole dollar amount. Round "Future value factor" to 4 decimal places.)

a. Assume Nina’s marginal tax rate at retirement is 30 percent.


Before-tax contribution	?
Future value factor	?
Future value of contribution	?
Taxes payable on distribution	?
After tax proceeds from distribution	?

b. Assume Nina’s marginal tax rate at retirement is 20 percent.


Before-tax contribution	?
Future value factor	?
Future value of contribution	?
Taxes payable on distribution	?
After tax proceeds from distribution	?

c. Assume Nina’s marginal tax rate at retirement is 40 percent.


Before-tax contribution	?
Future value factor	?
Future value of contribution	?
Taxes payable on distribution	?
After tax proceeds from distribution	?

Expert Solution

a)

Nina’s marginal tax rate at retirement is 30 percent

Before-tax contribution	13860
Future value factor	1.10²⁵ 10% annual rate for 25 years
	1.10²⁵ 10% annual rate for 25 years
Future value of contribution	150169 (13860 * 10.8347)
	150169 (13860 * 10.8347)
Taxes payable on distribution	45051 (150169*30%)
	45051 (150169*30%)
After tax proceeds from distribution	105118

b)

Nina’s marginal tax rate at retirement is 20 percent

Before-tax contribution	13860
Future value factor	1.10²⁵
Future value factor	10% annual rate for 25 years
Future value of contribution	150169
Future value of contribution	(13860 * 10.8347)
Taxes payable on distribution	30034
Taxes payable on distribution	(150169*20%)
After tax proceeds from distribution	120135

c)

Nina’s marginal tax rate at retirement is 40 percent

Before-tax contribution	13860
Future value factor	1.10²⁵
Future value factor	10% annual rate for 25 years
Future value of contribution	150169
Future value of contribution	(13860 * 10.8347)
Taxes payable on distribution	60068
Taxes payable on distribution	(150169*40%)
After tax proceeds from distribution	90101

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