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    Tax benefits through 401(K) Plan

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    Your friend, Sal, wants to know how much he would save in taxes by contributing to his 401(k) plan. He can invest up to 10% of his income into the plan. His current income is US$50,000 per year, and he is in the 25% tax bracket.

    In a memo to your friend that outlines how much he would save in taxes by contributing to his 401(k) plan. Include an Excel spreadsheet that provides answers for each of the following investment choices: 2%, 4%, 6%, 8%, and 10%. Additionally, provide Sal with other suggestions to minimize his taxes.

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    Solution Preview

    Please refer attached files for complete details. Tables may not print here properly.


    A 401(k) is an employer-sponsored qualified retirement savings plan. It is a saving for retirement. 401(k) plan helps you start regular investing, and stick with it. Your contributions are automatically deducted from your salary before you receive your check.
    Since the money is deducted from your gross income, you will have a lower taxable income, which means you will pay less in ...

    Solution Summary

    Solution describes the tax benefits through contributions in 401(K) Plans. Illustration is made for given various contributions.