Your tax liability is 30 percent of your $60,000 salary,and you contribute $4,000 to your 401(k)each year.If your employer matches $0.50 per dollar contributed up to five percent of your salary,how much free money are you getting this year by taking full advantage of the employer match?

Question

Quizplus · Accepted Answer

The tax liability would be 0.30 x $60,000 = $18,000. However, since the individual contributes $4,000 to their 401(k), their taxable income reduces to $56,000 ($60,000-$4,000). Therefore, the tax liability now becomes 0.30 x $56,000 = $16,800.

The employer matches $0.50 per dollar contributed up to five percent of the salary. Five percent of the salary is $60,000 x 0.05 = $3,000. Hence, the maximum matching contribution the employer provides is 0.50 x $3,000 = $1,500.

Since the individual is contributing $4,000, they are taking full advantage of the employer match. Hence, they will get the maximum matching contribution of $1,500 for free from the employer.

Therefore, the answer is B) $1,500.

Your Tax Liability Is 30 Percent of Your $60,000 Salary,and