CPA · Question 11 · Area I: Individual Compliance and Planning
A taxpayer, age 45, is in the 37% marginal tax bracket and expects to be in the 22% bracket in retirement. They have $23,000 to contribute to a retirement plan in Year 1. They can choose a Traditional 401(k) or a Roth 401(k). The contribution limit is $23,000 (stated). Assuming equal investment growth, which option yields the higher after-tax wealth at retirement?
Answer options:
Traditional 401(k)
Roth 401(k)
Both produce the same result.
Cannot be determined without the investment rate of return.
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