Jenny (35 Years Old) Is Considering Making a One-Time Contribution

question 3

Multiple Choice

Jenny (35 years old) is considering making a one-time contribution to either a traditional401(k) plan or to a Roth 401(k) plan. She plans to withdraw the account balance when she retires in 40 years. Jenny expects to earn a 7% before-tax rate of return no matter which plan she contributes to. Which of the following statements is true?

• A) Jenny is not allowed to make a one-time contribution to either plan.
• B) If Jenny's marginal tax rate in the year of contribution is higher than her marginal tax rate in the year of distribution, she will earn a higher after-tax rate of return on the traditional 401(k) plan than on the Roth 401(k) plan.
• C) Jenny will earn the same after-tax rate of return no matter which plan she contributes to.
• D) If Jenny's marginal tax rate in the year of contribution is lower than her marginal tax rate in the year of distribution, she will earn a higher after-tax rate of return on the traditional 401(k) plan than on the Roth 401(k) plan.

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Definitions:

Test Performance

An individual's performance or achievement on exams or assessments, measuring knowledge, ability, or skill in a particular area.

Yerkes-Dodson Law

A theory suggesting that there is an optimal level of arousal for the best performance of a task: too little or too much arousal can decrease performance.

Physiological Arousal

A physical state of heightened alertness and readiness to respond, involving changes such as increased heart rate, blood pressure, and sensory alertness.

Peak Performance

The state of delivering maximum productivity or achieving the highest level of performance in a given task.