Accu,ulated Value - Before-tax Vs. After-tax Contributions
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What is the accumulated value of a $1,000 contribution to a qualified defined contribution plan under each of the circumstances described in the table below?
Tax Rate Before-tax Rate of Return Investment Period
10% 8% 5 years
30% 8% 5 years
30% 4% 5 years
30% 4% 10 years
Suppose instead that the $1,000 is paid to an employee who then invests the funds in a non-qualified account. What is the accumulated value under each of the circumstances in the table? Compare the results.
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Solution Summary
This solution illustrates how to compute the benefit of making before-tax contributions to a pension plan versus after-tax contributions.
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