Joe makes $60,000 a year and wants to begin saving for his retirement in a 401K account. He can contribute a maximum of 15% of his gross salary each year, and, if he contributes 15%, his employer ...
... will contribute 5% of his salary to his 401K. Joe’s tax rate is 22% of his income, but any money he contributes to his 401K will not be taxed; only the money remaining after he makes his contribution will be taxed. Based on this information, which of the following statements is true?
If Joe contributes 15% of his salary to his 401K, he will pay $2,200 less in taxes.
If Joe contributes 10% of his salary to his 401K, he will lose more in potential contributions than he saves.
In four years Joe will have the equivalent of one year’s salary in his 401K.
If Joe contributes the maximum amount he is allowed to his 401K, he will have $12,000 in his 401K account at the end of the first year.
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