The basic idea is that you are not taxed on the funds until you withdraw, at which point you are taxed at the rate of your income tax bracket.
It assumes a lower tax bracket upon retirement or that taxes will not go up.
During World War II, policy makers pushed the income tax downward but also raised the top tax bracket, this time to 94%.
If tax brackets were never changed, over the next century, real income gains would push every American into the top tax bracket, even those with the lowest income.
From an economic point of view, only the marginal income is relevant, that is the income in the highest tax bracket.
Definition of tax bracket in US English:
tax bracket
nountaks ˈbrakəttæks ˈbrækət
A range of incomes taxed at a given rate.
Example sentencesExamples
From an economic point of view, only the marginal income is relevant, that is the income in the highest tax bracket.
If tax brackets were never changed, over the next century, real income gains would push every American into the top tax bracket, even those with the lowest income.
During World War II, policy makers pushed the income tax downward but also raised the top tax bracket, this time to 94%.
The basic idea is that you are not taxed on the funds until you withdraw, at which point you are taxed at the rate of your income tax bracket.
It assumes a lower tax bracket upon retirement or that taxes will not go up.