Question: a. In 2016, Nina contributes 10 percent of her $100,000 annual salary to her 401(k) account. She expects to earn a 6 percent before-tax rate of return. Assuming she leaves this in the account until she retires in 25 years, what is Nina's after-tax accumulation from her 2016 contributions to her 401(k) account? Assume Nina's marginal tax rate at retirement is 25 percent.
b. Leslie participates in IBO's nonqualified deferred compensation plan. For 2016, she is deferring 10 percent of her $290,000 annual salary. Based on her deemed investment choice, Leslie expects to earn a 7 percent before-tax rate of return on her deferred compensation, which she plans to receive in 10 years. Leslie's marginal tax rate in 2016 is 30 percent. Ignore payroll taxes in your analysis.Assuming Leslie's marginal tax rate in 10 years when she receives the distribution is 25 percent, what is Leslie's after-tax accumulation on the deferred compensation?