Jenny (35 Years Old)is Considering Making a One-Time Contribution to Either

question 94

Multiple Choice

Jenny (35 years old) is considering making a one-time contribution to either a traditional 401(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 percent before-tax rate of return no matter which plan she contributes to. Which of the following statements is true?

• A)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.
• B)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.
• C)Jenny will earn the same after-tax rate of return no matter which plan she contributes to.
• D)Jenny is not allowed to make a one-time contribution to either plan.

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Definitions:

Benefits

Advantages or positive outcomes derived from a particular action, decision, or situation.

Terror Management Theory

A psychological theory suggesting that much of human behavior is motivated by an underlying fear of death, leading individuals to seek symbolic or literal immortality through their actions and beliefs.

Anxiety About Death

A form of anxiety characterized by fear or worry about the inevitability of death and the uncertainty of what follows.

Close Relationships

Interpersonal relationships characterized by strong emotional bonds, mutual support, and enduring connections, such as those between friends, family, and romantic partners.