Question

In order to encourage employees to join the company 401(k) plan, on December 31, a local company adds to each employee's account an amount equal to 20% of that employee's annual contribution. Drema's account contained $1200 on January 1, which included both her annual contributions and her employer's contribution

Answer 1

A 401(k) plan is a retirement plan where employees can contribute a portion of their salary on a pre-tax basis. Drema's account contained $1200 on January 1, including both her annual contributions and her employer's contribution. To calculate her annual contribution, we need to subtract the employer's contribution from the total and solve the equation.

Step-by-step explanation:

The subject of this question is Business at a High School level.

A 401(k) plan is a defined contribution retirement plan offered by employers. In this plan, employees can contribute a portion of their salary on a pre-tax basis, which is then invested for their retirement. In this case, Drema's account contained $1200 on January 1, which included both her annual contributions and her employer's contribution.

To calculate her annual contribution, we need to subtract the employer's contribution from the total amount in Drema's account. Since the employer's contribution is equal to 20% of the annual contribution, we can set up the following equation: Drema's annual contribution - 0.2(Drema's annual contribution) = $1200. Solving this equation will give us the annual contribution amount.