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Activity: Funding 401(k)s and Roth IRAs Objective: The purpose of this activity is to learn to calculate 15% of an income to save for retirement

Activity: Funding 401(k)s and Roth IRAs

Objective: The purpose of this activity is to learn to calculate 15% of an income to save for retirement and to understand how to fund retirement investments.

Directions: Complete the investment chart based on the facts given for each situation. Assume each person is following Daves advice of investing 15% of their annual household income. Remember to follow the sequence of contributions recommended in the lesson.

Investments

Annual Salary

Company Match

401(k)

Roth IRA

Total Annual Investment

Joe

$40,000

1:1 up to 5%

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

  • 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 & Megan can each fund a Roth, then put the remainder in the 401(k). With no match, fund the Roth first (based on 2011 contribution of $5,000 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 & Britney are still within the guidelines for a married couple (based on 2011 contributions of $5,000 per individual). After maxing out the IRA, they will fund the 401(k).
  • Brandon will fund his 401(k) up to the match, then put the remainder in his Roth.
  • Chelsea will fund her Roth IRA.

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