Question
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% |
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Melissa | $55,000 | 1:2 up to 6% |
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Tyler & Megan | $105,000 | No Match |
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Adrian | $111,000 | 1:1 up to 3% |
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David & Britney | $150,000 | No Match |
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Brandon | $35,000 | 2:1 up to 6% |
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Chelsea | $28,000 | No Match |
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- 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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