Question

Jermaine invested $3,200 in a defined-contribution account. Assuming he is in a 20% marginal tax bracket, how much did he lower his income taxes with the investment

Answer 1

$640

Explanation:

You want to know the income tax reduction resulting from investing $3200 in a defined-contribution account when the marginal tax rate is 20%.

Tax exempt

The money invested in a defined-contribution account is not subject to income taxes when it is invested. The tax savings is ...

20% × $3200 = $640

Jermaine lowered his taxes by $640.