Beth earns $100,000 working as a part time lawyer in New Orleans. The company pr
ID: 2626596 • Letter: B
Question
Beth earns $100,000 working as a part time lawyer in New Orleans. The company provides a matching contribution to the 401(k) plan of 50% of her contribution up to a maximum contribution of 4% of compensation. Her 401(k) plan account had $60,000 in it at the beginning of the year. She contributed $15,000 to the plan this year and the employer made the matching contribution before year-end. The ending balance of the account is $100,000. What is her savings rate this year?
A. 15%
B. 19%
C. 22.5%
D. 35%
Explanation / Answer
The company provides a matching contribution to the 401(k) plan of 50% of her contribution up to a maximum contribution of 4% of compensation.
Maximum Contribution by employer = 4%*100000 = $ 4000
Employer Contribution = 50% * 15000 subject to maximum Contribution
Employer Contribution = $ 7500 subject to maximum Contribution
Therefore , Employer Contribution will be $ 4000
Total Amount Contributed before year end = Employee Contribution + Employer Contribution
Total Amount Contributed before year end = 15000 + 4000
Total Amount Contributed before year end = 19000
Opening Balance in the account = $ 60000
Total Interest Earned = 100000-60000-19000
Total Interest Earned = $ 21000
Her savings rate this year = 21000/60000
Her savings rate this year = 35%
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