Question

An employee in the 12% tax bracket

invests $1000.00 in a Roth IRA. When the
employee retires, her salary is in the 22%
tax bracket. What tax will be assessed on
the initial investment at retirement?
A. Since the employee used a Roth IRA, she will pay no taxes on her
investment at retirement.
B. Not enough information to answer
C. $120.00
D. $220.00

Answer 1

A. Since the employee used a Roth IRA, she will pay no taxes on her investment at retirement.

The Roth IRA is a type of individual retirement account (IRA) that allows the investor to contribute after-tax money to the account. This means that the investor pays taxes on the contributions upfront, but the investment grows tax-free and can be withdrawn tax-free at retirement. Therefore, the employee in this scenario will not have to pay any taxes on her initial investment of $1000.00 at retirement, regardless of her tax bracket at that time.