If a taxpayer's marginal tax rate is decreasing, a taxpayer contributing to a traditional IRA can earn an after-tax rate of return greater than her before-tax rate of return.

Question

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When a taxpayer's marginal tax rate is decreasing, they are in a lower tax bracket and will owe less in taxes on their traditional IRA contributions when they withdraw them in retirement. This allows them to earn a higher after-tax rate of return than if they had invested in a taxable account and paid taxes on their earnings each year.

If a Taxpayer's Marginal Tax Rate Is Decreasing, a Taxpayer