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

question 82

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:

Corporate Ownership

The state of holding ownership shares in a corporation, which may include individual stakeholders, institutional investors, or other companies.

Freedom of The Press

The right to circulate opinions in print without censorship by the government, allowing for open and free media.

Diversity of Opinion

The presence of multiple viewpoints or beliefs within a group, contributing to a broader understanding and discussion of issues.

Two-Step Flow

A communication model suggesting that information from the media moves in two distinct stages: first to "opinion leaders," then to a wider population.