Personal Financial Planning 13th Edition by Lawrence Gitman,Michael Joehnk,Randy Billingsley

Exercise 33

Kristin Caldwell has just graduated from college and is considering job offers from two companies. Although the salary and insurance benefits are similar, the retirement programs are not. One firm offers a 401(k) plan that matches employee contributions with 25 cents for every dollar contributed by the employee, up to a $10,000 limit. The other firm has a contributory plan that allows employees to contribute up to 10 percent of their annual salary through payroll deduction and matches it dollar for dollar; this plan vests fully after five years. Because Kristin is unfamiliar with these plans, explain the features of each to her so she can make an informed decision.