The employees of a firm complain that they can not afford to contribute $8,000 per year to a 401k,because of the loss of $8,000 of take home pay.In fact,how much will the take home pay be reduced if all taxes combined total 33%?

Question

Quizplus · Accepted Answer

The contribution to a 401k is made with pre-tax dollars, so the reduction in take-home pay is the contribution amount minus the tax savings. The tax savings is 33% of $8,000, which is $2,640. Therefore, the reduction in take-home pay is $8,000 - $2,640 = $5,360.

The Employees of a Firm Complain That They Can Not