PFIN 7:STUDENT EDITION-TEXT
7th Edition
ISBN: 9780357033616
Author: Billingsley
Publisher: CENGAGE L
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Chapter 14, Problem 7FPE
Summary Introduction
To explain: After- tax cost of 401k contribution.
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You and your spouse have the following retirement accounts. Tell me how much you can take out or
borrow from each account without incurring a tax penalty. Assume that you are a first time home
buyer and you are in the 17% Federal and state tax brackets.
Your IRA $9,000
Your Spouse's IRA $8,000
Your Roth IRA $18,000 (10,000 of contributions)
Your Spouse's Roth $15,000 (8,500 of contributions)
Your 401(k) $110,000
Based on the information above, answer the following questions:
* number your answers 1,2,3
1) How much can you take out or borrow without penalty for a down payment?
2) What is the maximum amount you can pay for a house if you put 20% down. Assume that you
can borrow any amount.
1. Luis Gomez is an operations manager for a large manufacturer. He earned $74,500 in 2018 and plans to contribute the maximum allowed to the firm's 401(k) plan. Assuming that Luis is in the 25 percent tax bracket, calculate his taxable income and the amount of his tax savings. Assume an individual employee can put as much as $18,500 into a tax-deferred 401(k) plan. The standard deduction for 2018 is $12,000. If necessary, round the answer for tax savings to the nearest cent.
1A. Taxable Income:
1B. Amount of his tax savings:
2. How much did it actually cost Luis on an after-tax basis to make this retirement plan contribution? If necessary, round the answer to the nearest cent.
$_______
LO.6 Harvey is a self-employed accountant with earned income from the business of $120,000
(after the deduction for one-half of his self-employment tax). He uses a defined contribution Keogh
plan. What is the maximum amount Harvey can contribute to his retirement plan in 2020?
Chapter 14 Solutions
PFIN 7:STUDENT EDITION-TEXT
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