Question

Abigail is a single woman whose salary is $95,000 per year. Based on the tax table below, how much does she need to contribute to her employer's 401(k) in order to fall in a tax bracket lower than the one she is currently in? A. $12,750 B. $16,500 C. $14,250 D. $9500

Answer 1

Abigail needs to contribute $21,200 to her employer's 401(k) in order to fall in a tax bracket lower than the one she is currently in.

Step-by-step explanation:

To find out how much Abigail needs to contribute to her employer's 401(k) in order to fall in a tax bracket lower than the one she is currently in, we need to determine her current tax bracket. Based on the given tax table, the tax brackets and rates are as follows:

1. Up to $18,150: 10%
2. $18,151 to $73,800: 12%
3. $73,801 to $148,850: 22%
4. $148,851 to $226,850: 24%
5. $226,851 to $405,100: 32%
6. $405,101 to $457,600: 35%
7. $457,601 or more: 37%

Abigail's salary is $95,000 per year, which falls into the tax bracket of $73,801 to $148,850. To fall into a lower tax bracket, Abigail needs to reduce her taxable income to be less than $73,800. Since contributions to a 401(k) are tax-deductible, she can reduce her taxable income by contributing to her employer's 401(k).

Let's calculate how much she needs to contribute:

1. Calculate the difference between her current taxable income and the upper limit of the lower tax bracket: $73,800 - $95,000 = -$21,200.

2. Abigail needs to contribute this amount to her employer's 401(k) in order to fall in a tax bracket lower than the one she is currently in. Therefore, she needs to contribute $21,200 to her employer's 401(k).