Question

Chapter 14 Financial Planning Exercise 9 Effective after-tax cost of 401(k) contribution Brad Shin is an operations manager for a large manufacturer. He earned $69,500 in 2015 and plans to contribute the maximum allowed to the firm's 401(k) plan. Assuming that Brad is in the 25% tax bracket, calculate his taxable income and the amount of his tax savings. Assume an individual employee can put as much as $18,000 into a tax-deferred 401(k) plan. Recall that standard deduction is $6,300 in 2015 and personal exemption amount is $4,000. If necessary, round the answer for tax savings to the nearest cent. Taxable income $ Amount of his tax savings $ How much did it actually cost Brad on an after-tax basis to make this retirement plan contribution? If necessary, round the answer to the nearest cent. $

Answer 1

given data

effecticvive ater tax 401k

givenn contribution bran chin is operator

assume brad 25%

strndard deduction $6300

tax defered $18000

1)	gross earnings in 2015	$68000
	less : stndard deduction	$6300
	less: contribution	$18000
	less :personal exepmtion	$4000
	net taxable income	$39700
	total deduction	$28300
	tax sacings	$7075
2)	total contribution (a)	$18000
	tax savings to deduct 25%	$4500
	after tax actual cost = (a)+(b)	$13500