Math

Sal and Cal both work for the same company making ​$55,000 each in annual salary. Sal deposits 5​% of her salary to her 401k plan and the company matches 25 cents for each dollar contributed to the 401k up to the 5​%. Cal deposits nothing into his 401k.

If they are both in the 20​% income tax​ bracket, how much more in taxes will Cal pay than​ Sal, assuming that all other factors are​ equal?

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  1. Since the 401k plan is tax free until the money is withdrawn, Sal has a 5% salary contributed to the plan AND deductible at the marginal rate of 20%.
    The company contribution does not matter for the current year taxes until the money is withdrawn.
    So the difference in taxes paid is 20% of 5% of the annual salary, or
    = $55000*0.05*0.20
    = $550

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