Assignment: Chapter 14 Planning for Retirement
3. Benefits of traditional and Roth 401(k) plans
Traditional 401(k) versus Roth 401(k)
Rajiv has decided to contribute to a savings program. He can open a traditional 401(k) or a Roth 401(k) and has determined that he can afford a
$14,400 contribution. Rajiv's salary is $106,500 per year, and he is in the 32% tax bracket.
If Rajiv decides to go with a traditional 401(k), his contribution amount will be $
And the amount offset via a reduced tax bill will be $
If, instead, Rajiv decides to go with a Roth 401(k), his contribution amount will be $
And the amount offset via a reduced tax bill will be $
Assuming all the same facts, suppose that Rajiv decides to open both 401(k) plans, splitting what he can afford to contribute equally between both
plans.
Under this scenario, Rajiv's contribution amount will be $
And the amount offset via a reduced tax bill will be $
When Rajiv retires, which plan's monies will he be able to exclude from taxable income?