Asked by chris
Sal and Cal both work for the same company making $55,000 each in annual salary. Sal deposits 5% of her salary to her 401k plan and the company matches 25 cents for each dollar contributed to the 401k up to the 5%. Cal deposits nothing into his 401k.
If they are both in the 20% income tax bracket, how much more in taxes will Cal pay than Sal, assuming that all other factors are equal?
If they are both in the 20% income tax bracket, how much more in taxes will Cal pay than Sal, assuming that all other factors are equal?
Answers
Answered by
MathMate
Since the 401k plan is tax free until the money is withdrawn, Sal has a 5% salary contributed to the plan AND deductible at the marginal rate of 20%.
The company contribution does not matter for the current year taxes until the money is withdrawn.
So the difference in taxes paid is 20% of 5% of the annual salary, or
= $55000*0.05*0.20
= $550
The company contribution does not matter for the current year taxes until the money is withdrawn.
So the difference in taxes paid is 20% of 5% of the annual salary, or
= $55000*0.05*0.20
= $550
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