Question

Minnie deposited $3,000 into a 401k that grew to to $6,000 at her retirement. If Minnie is currently the 10% tax bracket and us retired, how much tax will she have to pay when she withdrawals the entire $6,000?

Answer 1

It’s $600

Explanation:

Answer 2

$0

Explanation:

Every year, the IRS makes adjustments on more than 40 tax provisions for inflation. This is to prevent what is called “bracket creep,” when people are pushed into higher income tax brackets or have reduced value from credits and deductions due to inflation, instead of any increase in real income.

The IRS would use the Consumer Price Index (CPI) to calculate the past year’s inflation. However, with the Tax Cuts and Jobs Act of 2017, the IRS will now use the Chained Consumer Price Index (C-CPI) to adjust income thresholds, deduction amounts, and credit values accordingly.

See the table for Tax Bracket and Rates: