Milo has just become eligible for his employer-sponsored matching 401 K retireme
ID: 2753388 • Letter: M
Question
Milo has just become eligible for his employer-sponsored matching 401 K retirement plan. Milo is 35 and plans to retire at 65. Milo calculates that he can contribute $4,800 per year to his plan. Milo's employer will match this amount. If Vidar can earn a 5 percent return on his investment, how much will he have at retirement?
How much would Milo have at retirement if he had started to contribute to this plan at age 50?
How much would Milo have if he could earn a 10 percent return on his investment beginning at age 35?
According to 2015 tax rules, 401K plans can contribute $18,000 per year. How much could Milo accumulate in his 401 K if he took advantange of this option and invested $9,000 per year, assuming his employer would match the contribution for the same 30 year period at 8%.
If the 401K plan has a 2% program maintenance fee which decreased annual returns by 2% each year, how much would the fee have cost him in total?
Explanation / Answer
a. The total contribution to Milo's account = $9600 per year
If he invests this amount @5% then after 30 years ie. after retirement = (9600 * 30) /.05 = $5760000
b. Amount that Milo would have at retirement if he had started to contribute to this plan at age 50 = (9600 * 15) /.05 = $2880000
c. Amount that Milo would have if he could earn a 10 percent return on his investment beginning at age 35 = (9600 * 30) /.1= $2880000
d. If Milo invests $9000 per year then at the age of retirement he will have= (18000 * 30) / 8% =$6750000
e. The total cost that the fee would have costed = 18000 * 4% =$720