Farina In option 2, taxes paid today are on the basis of funds deposited (that's the assumption) today. I think this might be the crux of your confusion. But I agree this could have been more explicit.
However, if there is still any confusion a detailed explanation is below
The argument favours second option. It's validity can be tested only when both the options are considered in parallel.
D suggests that considering tax brackets 1) at present 2) after retirement have to be considered which is valid.
Example:
Tax system of a country might tax income in the level
1000-2000 @ 10%
2000-10000 @ 20%
10000 and above @30%
Option 2
So if today I deposit 1000, my deposit would be taxed at 10%, so it's 100. Let's imagine that I assume 1000 every year for next 8 years till retirement, my total deposit would be 8000 but I would pay 100 in taxes each year, so total tax in option 2 would 800
However if I exercise option 1
My total taxes would be 30% on 8,000 = 2400
So it's important to consider tax brackets as mentioned in option D
Farina wrote:
I though the argument is about amount upon retirement and not before that. Why they are considering option D when argument is all about "after retirement" options?
Posted from my mobile device