Question

An employee in the 12% tax bracket

invests $2000.00 in a Traditional IRA.
When the employee retires, her salary is in
the 22% tax bracket. What tax will be
assessed on the initial investment when it
opens?
A. Not enough information to answer
B. $440.00
C. $240.00
D. Since the employee used a Traditional IRA, she will pay no taxes
on her investment when it opens.

Answer 1

The tax assessed on the initial investment when it opens is $240.00.

Step-by-step explanation:

To calculate the tax that will be assessed on the initial investment when it opens, we need to determine the difference in tax brackets and calculate the tax for each bracket.

Given that the employee is in the 12% tax bracket initially and 22% when she retires, she will pay 12% tax on the initial investment when it opens. Therefore, the tax assessed on the initial investment is $2000.00 x 0.12 = $240.00.

Answer: C. $240.00