Author Question: In contrast to a traditional IRA, contributions to a Roth IRA are not tax-deductible. However, ... (Read 78 times)

KimWrice · **on:** Jun 29, 2018

In contrast to a traditional IRA, contributions to a Roth IRA are not tax-deductible. However, withdrawals are tax-free.

Can you think of any reason why someone might wish to use this type of IRA over a traditional IRA that allows tax deductible contributions? Compare and contrast the motivations that would lead to people to invest in either of them.

Question 2

What does it mean when an economist says that a firm is buying labor in a competitive market?

What will be an ideal response?

macybarnes · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Those who contribute to Roth IRAs probably believe that they will be in higher tax rates when then retire. In contrast those who invest in traditional IRAs prefer the tax deductibility during their working years because they believe they will be in a lower tax bracket during retirement.

Answer to Question 2

If a firm is buying labor in a competitive labor market, it is a price taker. This means that the firm has no control over the wage that it pays to its workers. It is sufficiently small to be able to hire all of the labor it wants at the market equilibrium wage. The firm would also not be able to hire any labor at wages below their market level.