Elizabeth currently makes $45,000 per year and is in a 25% tax bracket.If she contributes $2,400 to her 401(k)plan at work,by how much will this lower her taxable income?

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Quizplus · Accepted Answer

Contributing $2,400 to her 401(k) plan will lower Elizabeth's taxable income by $2,400. It will not lower it by the total amount of her contribution because contributions made to a traditional 401(k) plan are made with pre-tax dollars. So, in this case, Elizabeth's taxable income will be reduced from $45,000 to $42,600 ($45,000 - $2,400).

Elizabeth Currently Makes $45,000 Per Year and Is in a 25