2. A normal 401(k)/IRA contribution is only taxed when you take funds out. A ROTH 401(k)/ROTH IRA is only taxed when you put funds in. Assume you earn $70,000 your first year out of school. Assume you work for 40 year and your Income grows by 3%/yr. Option 1, you contribute 5% of your gross salary at the end of every year to a normal 401(k). Option 2, you contribute 5% of your after-tax salary to a ROTH 401(k). We know that your tax rate today is 25%. Assume that your tax rate increases by 0.25 points every year. Finally assume that both option 1 & 2 accounts grow by 6% per year due to the fact they are invested in the market.

Back to Option 1. At the end of 40 years you retire and decide to withdraw all your normal 401(k) funds. You must pay tax on those funds to make the withdraw. If applied 40 years from now, what is the tax rate that would make the after-tax funds from option 1, equal the available funds from option 2?