The Sampsons’ tax bracket has not changed. Assuming that Dave contributes $7,000 to his retirement account and that his taxes are lower as a result, by how much are Dave’s cash flows reduced over the coming year? (Refer to your answer in question when solving this problem.).

Question

Assuming that Dave’s marginal tax bracket is 25%, by how much should his federal taxes decline the year if he contributes $7,000 to his retirement account?