One retirement account option allows a worker to save money without pa

One retirement account option allows a worker to save money without paying taxes, but requires the worker to pay taxes on funds withdrawn from the account upon retirement. A second option requires the worker to pay taxes upfront, but allows the worker to withdraw funds tax-free upon retirement. Assuming that the total amount available in the worker’s retirement account at retirement is higher than the total amount contributed prior to retirement, workers can expect to pay less in taxes overall if they choose the second option.

Which of the following pieces of information would be most useful in determining whether the conclusion is valid for an individual worker?

Boil it down - Assuming that the total amount available in the worker’s retirement account at retirement is higher than the total amount contributed prior to retirement, workers can expect to pay less in taxes overall if they choose the second option.

(A) The amount of money the worker will contribute to the retirement plan over his or her career - Irrelevant - the actual amount is not relevant
(B) The amount that tax rates will increase in the future - Strengthens - If the tax rates in future increases, the people who chose plan 1 will have pay to more taxes
(C) Whether inflation will be lower than the retirement account’s annual earnings - Irrelevant - Though the actual purchasing power of $ might reduce if inflation is high but it it irrelevant to taxes
(D) How the worker’s tax bracket in retirement compares to his or her tax bracket while still employed - Correct - We can also apply variance test here.
If pre-retirement worker's tax bracket is LOWER than post-retirement's , then he should chose plan 2 else plan 1 (deferred tax payment).

(E) The dollar value of the worker’s account upon retirement - Irrelevant



Answer D