Question

Take Test: Lab 3: Saving for Retirement Quiz Suppose Betty saves $200 each month in her 401(k) account. How much less will her monthly take-home pay be? (Assume a combined 20% state and federal income tax rate, as in the example.)

Answer 1

Answer:

$160

Explanation:

her net monthly take home pay will be reduced by $200 x (1 - combined tax rate = $200 x (1 - 20%) = $200 x 0.8 = $160

If instead of contributing to her 401k account, Betty took the money home, she would have to pay $40 in taxes (both state and federal), so the net amount that she receives is reduced by the taxes that she pays.