An employee contributes 6 percent of her salary to her 401(k)plan and her employer contributes another $1,900. The employee earns $75,000 and is in a 28 percent tax bracket. If the employee earns 8.50 percent on all funds invested each year and her salary does not change,how much will she have in her account in 20 years?

Question

Quizplus · Accepted Answer

First, let's calculate how much the employee is contributing:

$75,000 x 6% = $4,500

Next, let's calculate the total contribution to the 401(k) plan:

$4,500 + $1,900 = $6,400

Now, let's calculate what the employee's after-tax contribution would be:

$4,500 x (1 - 0.28) = $3,240

So, the total contribution to the 401(k) plan after taxes is:

$3,240 + $1,900 = $5,140

Using the compound interest formula, we can calculate the balance of the 401(k) plan after 20 years:

FV = PV x (1 + r)^n

FV = $5,140 x (1 + 0.085)^20

FV = $309,613

Therefore, the best choice is E.

An Employee Contributes 6 Percent of Her Salary to Her