9. [The following information applies to the questions displayed below.] In 2017

Question

9. [The following information applies to the questions displayed below.]

In 2017, Maggy (34 years old) is an employee of YBU Corp. YBU provides a 401(k) plan for all its employees. According to the terms of the plan, YBU contributes 50 cents for every dollar the employee contributes. The maximum employer contribution under the plan is 15 percent of the employee’s salary (if allowed, YBU contributes until the employee has contributed 30 percent of her salary). (Use Exhibit 13-2)

c. Maggy wants to maximize YBU’s contribution to her 401(k) account in 2017. How much should Maggy contribute to her 401(k) account assuming her annual salary is $100,000 (she works for YBU for the entire year)?

Maggy's contribution: $_________________

d. Same question as part (c), except Maggy is 55 years old rather than 34 years old at the end of the year.

Maggy's contribution: $_____________________

EXHIBIT 13-2 Defined Contribution Plans Minimum Vesting Schedules* Full Years of Service with Employer 3-Year Cliff 6-Year Graded 0% 20 40 0% 0 100 N/A N/A N/A 60 80 100

Explanation / Answer

c) As the maximum employer contribution allowed is 15% of annual salary. Thus for maximising YBU's contribution to her 401(k) account in 2017 she can contribute 30% of her annual salary (i.e. 30% of $100,000 = $30,000). But the maximum limit allowed for contribution in 2017 is $18,000. Thus she can contribute upto maximum limit of $18,000. Thus her contribution will be $18,000 and the contribution by YBU will be $9,000 ($18,000*0.50)

d) If Maggy is 55 years old rather than 34 years old at the end of year then her maximum contribution is increased by catch up contribution for the age of 50 years and above which is $6,000 for 2017. Thus her contribution will be $24,000 ($18,000+$6,000) and YBU 's contribution will be $12,000 ($24,000*0.50).

Related Questions

Navigate

• Browse (All)
• Browse 9
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.