Questions: As a wealth-building strategy, your Professor suggests you should do what in the following scenario. You work for a company that offers a 401 K benefit, with a dollar-for-dollar match of up to 5% of your salary. - Put in 3% and have the company match that because the extra 2% over the 3% carries a higher tax rate - At the least put in 5% of your salary in the 401 K - Put 5% of your salary in the 401 K but decline the match for tax purposes - Wait until you are more financially secure to contribute and then put in 7%

The answer is: At the least put in 5% of your salary in the 401(k).

Explanation for each option:

1. Put in 3% and have the company match that because the extra 2% over the 3% carries a higher tax rate:

   • This option is not optimal because it leaves free money on the table. The company is offering a dollar-for-dollar match up to 5%, so contributing only 3% means you are missing out on an additional 2% match from the company. The tax benefits of contributing to a 401(k) generally outweigh the concern about a higher tax rate on the extra 2%.

2. At the least put in 5% of your salary in the 401(k):

   • This is the best option because it maximizes the employer match. By contributing 5%, you take full advantage of the company's offer to match your contributions dollar-for-dollar up to 5%. This effectively doubles your investment up to that 5% threshold, which is a significant benefit for wealth-building.

3. Put 5% of your salary in the 401(k) but decline the match for tax purposes:

   • This option is not advisable because declining the match means you are not taking advantage of the free money offered by your employer. The match is a significant benefit and should not be declined.

4. Wait until you are more financially secure to contribute and then put in 7%:

   • This option delays the benefits of both your contributions and the employer match. Starting early with contributions, even if it's just 5%, allows your investments more time to grow through compound interest. Waiting until you are more financially secure could mean missing out on years of potential growth and employer contributions.

In summary, contributing at least 5% of your salary to your 401(k) to take full advantage of the employer match is the most effective wealth-building strategy in this scenario.