Question

Your income is $10,000 over the cutoff for the next lowest tax bracket. Your average tax rate is 10%. Your marginal tax rate is 25%. You contribute $3,000 to a traditional IRA and your contribution is fully deductible, should you decide to go that way. You decide, in fact, to make this a traditional IRA. How much did your contribution actually cost you, in after-tax dollars

Answer 1

"$2,250" is the appropriate answer.

Step-by-step explanation:

Given values are:

Before tax cost,

= $3000

Marginal tax rate,

= 25%

or,

= 0.25

The after tax cost of contribution will be:

=
`Before \ tax \ cost* (1-Marginal \ tax \ rate)`

By putting the values, we get

=
`3000(1-25 \ percent)`

=
`3000(1-0.25)`

=
`3000* 0.75`

=
`2250` ($)