question 15 (2 points) based on what you have learned about different retirement plans, do you think you…

question 15 (2 points) based on what you have learned about different retirement plans, do you think you would rather have a roth 401k/ira or a traditional 401k/ira? explain your answer in 3 sentences\n\nquestion 16 (3 points) jackie is 25 years old and has just been hired at a new job that has a contracted salary of $50,000 a year. this job has a 401k retirement plan for their employees. one of the first things she needs to do is set up this account and make a decision on how much she will have taken from her paycheck to fund this retirement plan.\nshe has decided to contribute 7% of her monthly earnings and the employer will match 50% up to 6% of her salary. currently she is planning to retire at age 67. the average rate of return on investment is projected to be 8%. the fees for the plan will account for 0.4%.\nyour task #1: go to http://www.nerdwallet.com/investing/401k - calculator and put in the information from the scenario.\nyour task #2: looking at the graph, answer the following questions\n*** when looking at these numbers, note that inflation and salary increases have not been accounted for ***\n1. what will be her 401k balance at retirement?\n2. after working there for 20 years, how much will she have personally contributed? (mouse over the graph until you see 2044 to find the answer)\n3. if she increased her contributions 7% to 8% how much would her balance at retirement be?\nblank 1:\nblank 2:\nblank 3:

question 15 (2 points) based on what you have learned about different retirement plans, do you think you would rather have a roth 401k/ira or a traditional 401k/ira? explain your answer in 3 sentences\n\nquestion 16 (3 points) jackie is 25 years old and has just been hired at a new job that has a contracted salary of $50,000 a year. this job has a 401k retirement plan for their employees. one of the first things she needs to do is set up this account and make a decision on how much she will have taken from her paycheck to fund this retirement plan.\nshe has decided to contribute 7% of her monthly earnings and the employer will match 50% up to 6% of her salary. currently she is planning to retire at age 67. the average rate of return on investment is projected to be 8%. the fees for the plan will account for 0.4%.\nyour task #1: go to http://www.nerdwallet.com/investing/401k - calculator and put in the information from the scenario.\nyour task #2: looking at the graph, answer the following questions\n*** when looking at these numbers, note that inflation and salary increases have not been accounted for ***\n1. what will be her 401k balance at retirement?\n2. after working there for 20 years, how much will she have personally contributed? (mouse over the graph until you see 2044 to find the answer)\n3. if she increased her contributions 7% to 8% how much would her balance at retirement be?\nblank 1:\nblank 2:\nblank 3:

Answer

Explanation:

Step1: Analyze retirement - plan preference

For Question 15, the choice between Roth and Traditional 401K/IRA depends on factors like current and expected future tax - brackets. If one expects to be in a higher tax - bracket in retirement, a Roth 401K/IRA (taxes paid now) may be better. If in a lower tax - bracket in retirement, a Traditional 401K/IRA (taxes paid later) could be more beneficial.

Step2: Calculate 401K balance for Question 16

First, calculate monthly salary: $50000\div12\approx4166.67$. Her monthly contribution is $0.07\times4166.67 = 291.67$. Employer match for 6% of salary: $0.06\times4166.67 = 250$, and employer match amount is $0.5\times250 = 125$. Net monthly contribution is $291.67 + 125=416.67$. She plans to retire at age 65, so number of years of contribution $n = 65 - 25=40$ years, or $40\times12 = 480$ months. Using the future - value of an ordinary annuity formula $FVA = P\times\frac{(1 + r)^{n}-1}{r}$, where $r=\frac{0.08 - 0.004}{12}\approx0.006333$ and $P = 416.67$. $FVA=416.67\times\frac{(1 + 0.006333)^{480}-1}{0.006333}$. $(1 + 0.006333)^{480}\approx13.97$. $FVA=416.67\times\frac{13.97 - 1}{0.006333}=416.67\times\frac{12.97}{0.006333}=416.67\times2048.01\approx853997.57$.

Step3: Calculate personal contribution after 20 years

20 years is $20\times12 = 240$ months. Her personal monthly contribution is $291.67$. Total personal contribution is $291.67\times240 = 70000.8$.

Step4: Calculate new balance with increased contribution

If contribution is 8% of salary, monthly salary is still $4166.67$, new personal monthly contribution is $0.08\times4166.67 = 333.33$. Employer match for 6% of salary is still $125$. New net monthly contribution is $333.33+125 = 458.33$. Using the same $r$ and $n = 480$ months in the FVA formula. $(1 + 0.006333)^{480}\approx13.97$. $FVA = 458.33\times\frac{13.97 - 1}{0.006333}=458.33\times\frac{12.97}{0.006333}=458.33\times2048.01\approx938997.77$.

Answer:

Question 15: It depends on tax - bracket expectations. If expecting a higher tax - bracket in retirement, Roth 401K/IRA may be preferred; if lower, Traditional 401K/IRA could be better. Question 16 Blank 1: $$853997.57$ Question 16 Blank 2: $$70000.8$ Question 16 Blank 3: $$938997.77$