Keisha (50 Years of Age)is Considering Whether to Participate in Her

Essay

Keisha (50 years of age)is considering whether to participate in her company's Roth 401(k)or traditional 401(k). This year, she plans to invest either $4,000 in a Roth 401(k)or $5,000 in a traditional 401(k). Keisha plans on leaving the contribution in the retirement account for 20 years, when she will receive a distribution of the entire balance in the account. Her employer does not have a matching program for employee contributions to retirement accounts. Assume Keisha can earn a 6 percent before-tax return in either account and that she anticipates that in 20 years her tax rate will be 30 percent.
1)What would be Keisha's after-tax accumulation in 20 years if she contributes $4,000 to a Roth 401(k)account?
2)What would be her after-tax accumulation in 20 years if she contributes $5,000 to a traditional 401(k)account? (Round future value factors to five decimal places and the future value and final answers to the nearest whole number.)