Keisha (50 Years of Age) Is Considering Whether to Participate

question 39

Essay

Keisha (50 years of age) is considering whether to participate in her company's Roth 401(k) or traditional 401(k). This year, she plans to invest either $4,000 in a Roth 401(k) or $5,000 in a traditional 401(k). Keisha plans on leaving the contribution in the retirement account for 20 years when she will receive a distribution of the entire balance in the account. Her employer does not have a matching program for employee contributions to retirement accounts. Assume Keisha can earn a 6 percent before tax return in either account and that she anticipates that in 20 years her tax rate will be 30%.
1) What would be Keisha's after-tax accumulation in 20 years if she contributes $4,000 to a Roth 401(k) account?
2) What would be her after-tax accumulation in 20 years if she contributes $5,000 to a traditional 401(k) account? (Round future value factors to 5 decimal places and the future value and final answers to the nearest whole number)

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Definitions:

Equilibrium Quantity

The volume of commodities or services provided and required at the price where supply equals demand.

Technology Improvements

Enhancements and advancements in various technological fields that lead to better efficiency, productivity, or utility.

Substitute Good

A product or service that can be easily replaced with another by consumers if it becomes too expensive or is unavailable.

Suppliers

Entities that provide goods or services to another company or individual, often as part of a supply chain or market.