Question

Directions: 1. Assume each person is following Dave’s advice of investing 15% of his or her annual household income.

2. Follow the sequence of contributions recommended in the lesson. Always take advantage of a match and fund 401(k). A. Above the match, fund Roth IRAs. B. If there is no match, start with Roth IRAs.

3. Complete 15% of income by going back to your 401(k) or other company plans.

4. Carefully review each investor's information prior to completing the chart. 5. You will need a calculator to complete this activity.

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Investors:


Joe will take advantage of the company match (5% of salary) then put the rest in a Roth IRA.


Melissa will fund the 401(k) up to the match and put the remainder in her Roth.


Tyler and Megan can each fund a Roth then put the remainder in the 401(k). With no match, fund the Roth first (based on 2013 contribution of $5,500 per individual).


Adrian is not eligible to open a Roth IRA because he makes too much money. He will put his entire 15% into his 401(k).


David and Britney are still within the guidelines for IRA contributions for a married couple (based on 2013 contribution of $5,500 per individual). After maxing out the IRA, they will fund the 401(k).


Brandon will fund his 401(k) up to the match, and then put the remainder in his Roth IRA.


Chelsea will fund her Roth IRA.

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First one is an example.

Investment | Annual Salary | Company Match | 401(k) | Roth IRA | Total Investment


Joe $40,000 1:1 up to 5% $2,000 $4,000 $6,000


Melissa $55,000 1:2 up to 6%


Tyler & Megan $105,000 No Match


Adrian $111,000 1:1: up to 3%


David & Britney $150,000 No Match


Brandon $35,000 2:1 up to 6%


Chelsea $28,000 No Match

Answer 1

Step-Let's go through each investor and calculate their investments according to the given instructions.

Investment | Annual Salary | Company Match | 401(k) | Roth IRA | Total Investment

Joe | $40,000 | 1:1 up to 5% | $2,000 | $4,000 | $6,000

Joe will take advantage of the company match, which is 1:1 up to 5% of his salary. Since his salary is $40,000, 5% of that is $2,000. So, the company will match his contribution with an additional $2,000. The remaining 10% of his income, which is $4,000, will go into his Roth IRA. Therefore, Joe's total investment is $6,000.

Melissa | $55,000 | 1:2 up to 6% | $3,300 | $5,700 | $9,000

Melissa will fund her 401(k) up to the match. The company match is 1:2 up to 6% of her salary. 6% of $55,000 is $3,300, so the company will match that with an additional $6,600. The remaining 9% of her income, which is $5,700, will go into her Roth IRA. Therefore, Melissa's total investment is $9,000.

Tyler & Megan | $105,000 | No Match | $0 | $11,550 | $11,550

Since Tyler and Megan don't have a company match, they will start by funding their Roth IRAs. According to the given information, the contribution limit for a Roth IRA is $5,500 per individual. Since there are two individuals, they can each contribute $5,500, totaling $11,000. Therefore, Tyler and Megan's total investment is $11,550.

Adrian | $111,000 | 1:1 up to 3% | $3,330 | $0 | $3,330

Adrian is not eligible to open a Roth IRA, so his entire 15% will go into his 401(k). The company match is 1:1 up to 3% of his salary. 3% of $111,000 is $3,330, so the company will match that with an additional $3,330. Therefore, Adrian's total investment is $3,330.

David & Britney | $150,000 | No Match | $0 | $11,000 | $11,000

Since David and Britney are still within the guidelines for IRA contributions for a married couple, they will fund their IRAs first. They can each contribute $5,500, totaling $11,000. After maxing out their IRAs, the remaining amount will go into their 401(k). Therefore, David and Britney's total investment is $11,000.

Brandon | $35,000 | 2:1 up to 6% | $1,050 | $3,950 | $5,000

Brandon will fund his 401(k) up to the match. The company match is 2:1 up to 6% of his salary. 6% of $35,000 is $2,100, so the company will match that with an additional $4,200. The remaining 9% of his income, which is $3,950, will go into his Roth IRA. Therefore, Brandon's total investment is $5,000.

Chelsea | $28,000 | No Match | $0 | $4,200 | $4,200

Since Chelsea doesn't have a company match, she will fund her

by-step explanation:

Answer 2

Let's break down the investment strategy for each investor:

1. Joe: He will take advantage of the company match, which is 5% of his salary. So, the company will contribute $2,000 (5% of $40,000). The remaining amount, $4,000, will be put into his Roth IRA. In total, Joe will invest $6,000.

2. Melissa: She will fund her 401(k) up to the match. Since the match ratio is 1:2 up to 6%, we need to calculate 6% of Melissa's salary. 6% of $55,000 is $3,300. Melissa will contribute $3,300 to her 401(k) and put the remainder in her Roth IRA.

3. Tyler and Megan: They can each fund a Roth IRA and put the remainder in their 401(k). Since there is no match, they will prioritize funding the Roth IRA. Based on the 2013 contribution limit of $5,500 per individual, each of them will invest $5,500 in their Roth IRAs. The remainder of their 15% income, $94,000 - $5,500 - $5,500 = $83,000, will go into their 401(k).

4. Adrian: He is not eligible to open a Roth IRA due to his high income. Adrian will put his entire 15% income, which is $16,650 (15% of $111,000), into his 401(k).

5. David and Britney: They are still within the guidelines for IRA contributions for a married couple, which is based on the 2013 contribution limit of $5,500 per individual. They will max out their IRAs by contributing $5,500 each. After that, they will fund their 401(k) with the remaining amount.

6. Brandon: He will fund his 401(k) up to the match, which is a 2:1 match up to 6%. 6% of Brandon's salary is $2,100 (6% of $35,000), and the company will contribute twice that amount, which is $4,200. The remaining income will be put into his Roth IRA.

7. Chelsea: Since there is no match for Chelsea, she will fund her Roth IRA with her 15% income, which is $4,200 (15% of $28,000).

Please note that the table provided only shows the example for Joe and his total investment of $6,000. You can follow a similar step-by-step approach to calculate the total investment for each investor based on their specific situation and the given instructions.