Question

49. LO.8 Amber's employer, Lavender, Inc., has a § 401(k) plan that permits salary deferral elections by its employees. Amber's salary is $99,000, and her marginal tax rate is 33%.

a. What is the maximum amount Amber can elect for salary deferral treatment for 2015?
b. If Amber elects salary deferral treatment for the amount in (a), how much can she save in taxes?
c. What amount would you recommend that Amber elect for salary deferral treatment for 2015?

Answer 1

Amber's maximum salary deferral amount for 2015 is $18,000. If she elects the maximum amount, she can save $5,940 in taxes. The recommended amount for salary deferral treatment depends on individual financial goals and should be determined with professional guidance.

Step-by-step explanation:

a. The maximum amount Amber can elect for salary deferral treatment for 2015 is determined by the IRS contribution limits for § 401(k) plans. For 2015, the maximum contribution limit is $18,000.

b. If Amber elects the maximum salary deferral amount of $18,000, she can save taxes based on her marginal tax rate of 33%. Therefore, she can save $5,940 in taxes (33% x $18,000).

c. The recommended amount for Amber to elect for salary deferral treatment for 2015 depends on her financial goals, expenses, and other factors. It would be best for Amber to consult a financial advisor or tax professional to determine the optimal amount to contribute to her § 401(k) plan.