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 $5,500 to his traditional IRA,how much money will he save on his income tax liability?

Question

Quizplus · Accepted Answer

Contributions to a traditional IRA provide tax deductions, which reduces one's taxable income. In this case, Jose is in the 15% marginal tax bracket, which means that for every dollar he contributes to his traditional IRA, his income tax liability will be reduced by $0.15. If he contributes the maximum of $5,500, then his tax liability will be reduced by $5,500 x 0.15 = $825. Option A is incorrect because a traditional IRA also provides tax deductions on contributions. Option B is incorrect because individuals with incomes up to $63,000 (for single filers) and $101,000 (for married couples filing jointly) can generally deduct their contributions to a traditional IRA, which applies to Jose's income level. Option D is incorrect because the maximum contribution limit is $5,500, so he cannot contribute more than that amount.

Jose Does Not Have a Retirement Plan at Work