Question

An employee is considering two job offers.

First offer: $57,000 yearly salary with a 9% matching 401k
Second offer: $63,000 yearly salary with a 5% matching 401k
The employee plans to stay at either job for at least 4 years, assumes there are no salary increases, and will make 401k contributions at the same rate the company matches.
After 4 years, the total value of the first offer, including gross income and total 401k contributions, is $269,040.
Which job has the better overall pay structure, and by how much?
O The first job offer is better by $1,860.
O The second job offer is better by $1,860.
O The first job offer is better by $8,160.
O The second job offer is better by $8,160.

Answer 1

The first job has the better overall pay structure. Please use the explanation below to help you remember the steps.

Explanation:

First, let's calculate the total value of the second offer after 4 years.

The gross income for the second offer over 4 years is 4 x $63,000 = $252,000.

The total 401k contribution over 4 years is 4 x $63,000 x 0.05 = $12,000.

Adding these together, the total value of the second offer after 4 years is $252,000 + $12,600 = $264,600

Comparing the total values of the two offers, the first offer has a higher total value after 4 years.

So, the first job has the better overall pay structure.

Answer 2

The second job offer is better by $8,160.

Explanation:

To calculate the total value of the second offer after 4 years, we can use the following formula:

Total value = (yearly salary x 4) + (401k match x 4)

For the second offer, this would be:

Total value = ($63,000 x 4) + (0.05 x $63,000 x 4) = $269,040

Since the second job offer has a higher gross income and the 401k match difference is smaller than the salary difference, the second offer is better by $8,160.