I am having some trouble with this one, if anyone is available to help. XTZ Manu
ID: 2555755 • Letter: I
Question
I am having some trouble with this one, if anyone is available to help.
XTZ Manufacturing Company
You have just begun work at XYZ Manufacturing Company. Among its benefits offerings is a generous qualified 401(k) plan with an employer match. In 2015, your annual salary is $45,000 and you are age 55. You’ve decided to contribute 10 percent of your annual salary to your 401(k) plan even though the Internal Revenue Service allows you to contribute up to $24,000 in 2015 ($18,000 plus a $6,000 catch up contribution for employees age 50 or more). The annual addition is $53,000.
How much more money would you need to contribute to meet the allowable maximum contribution?
In 2015, the company offers a $0.75 match for each dollar that you contribute between 3 percent and 6 percent of your annual salary. How much is the company match based on your 10 percent contribution?
Based on the sum of your answers to questions 9-9 and 9-10, what is the difference between the IRS maximum annual addition for 2015 and the total contribution to your 401(k) plan?
Explanation / Answer
There is a combined contribution limit of $53,000 for the employer and employee contributions in 2015.
Also, in 2015, the employee’s contribution limit is $18,000, plus an additional $6,000 for employees ages 50 and older, which raises the employee and combined contribution limits for these employees to $24,000 and $59,000, respectively.
If you contribute 10%, then employer will also contribute 10% i.e. $4500 + $4500 = $9000
The maximum contribution will be $24000 from the employee and the employer can also contribute $24,000 leading to overall contribution of $48000. Both of these amounts are under the limit.
If the company offers a $.75 match for each dollar that you contribute between 3 - 6%.
So that means the employer will contribute first 3% @ 100%, next 3% @ 75% and remaining again 4% @ 100%.
= 45000x3% + 45000x3%x75% + 45000x4% = 1350 + 1012.50 + 1800 = $4162.50
So maximum contribution under this scenario will be = $4500 + $4162.50 = $8662.50
Difference in contribution = 9000 - 8662.50 = $337.50
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.