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Author Question: An IRA (Individual Retirement Account) allows taxpayers to invest money out of their personal income ... (Read 52 times)

123654777

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on: Jun 29, 2018
An IRA (Individual Retirement Account) allows taxpayers to invest money out of their personal income before taxes.
 
  Financial advisors will often tell their clients that they will realize more net pay (income after taxes) if they invest with an IRA versus saving their money in a simple savings account at a bank. Explain how this is so.

Question 2

Buyers rush to purchase stocks in California vineyards following a forecast of a 30 percent decline in this year's grape harvest. What happens in the California wine market as a result of this announcement?
 
  A) The demand curve for California wine shifts to the right in anticipation of higher prices in the future.
  B) The demand curve for California wine shifts to the left in anticipation of higher prices in the future.
  C) The supply curve for California wine shifts to the left in anticipation of lower quantities in the future.
  D) The supply curve for California wine shifts to the right in anticipation of higher prices in the future.
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sierrahalpin

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Reply #1 on: Jun 29, 2018
Answer to Question 1

Suppose that you are in the 28 tax bracket. If you save 1000 per year in a savings account without tax protection you will see a 1000 drop in your net income. However, if you save 1000 through an IRA you will only experience a 720 drop in your net income. The reason for this is that the 1000 is not subject to taxation. Normally 28 of this 1000 of income would be withheld (280).

Answer to Question 2

A


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