Jose does not have a retirement plan at work. He currently earns $30,000 in salary and is in the 15% marginal tax bracket. If he contributes the maximum contribution of $5,000 to his traditional IRA, how much money will he save on his income tax liability?

Question

Quizplus · Accepted Answer

Contributions to traditional IRAs are tax-deductible, which means that they lower your taxable income for the year in which you make the contribution. So, if Jose contributes $5,000 to his traditional IRA, his taxable income will decrease from $30,000 to $25,000 ($30,000-$5,000). Since he is in the 15% marginal tax bracket, this means that he will save 15% of $5,000, which is $750 in income tax. Therefore, the correct answer is C.

Jose Does Not Have a Retirement Plan at Work