A single person with a monthly taxable income of $7,000 in the 28 percent marginal tax bracket forgoes consumption and instead places $450 into a tax-sheltered retirement plan every month.What are the yearly tax savings due to these retirement contributions?
A)$1,120
B)$5,400
C)$1,512
D)$1,316

Question

Quizplus · Accepted Answer

The yearly contribution to the retirement plan is $450 x 12 = $5,400.
The tax savings is calculated by multiplying the contribution by the marginal tax rate: 
$5,400 x 0.28 = $1,512.
Therefore, the correct answer is C) $1,512.

A Single Person with a Monthly Taxable Income of $7,000