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Because for the increasing tax rate of upper brackets, a reduction of taxable income attending the higher bracket saves you more tax than exact reduction in a lower range. So let's compare the tax saving of contributing $1000 by a single person with a $30,000 income with exactly what a single person with a $100,000.

Congress finally acted on New Year's Day, passing the "fiscal cliff" law. This law extended the existing tax rate structure for single taxpayers with taxable income of reduce USD 400,000, and married taxpayers with taxable income of less than USD 450,000. For which higher incomes, the top tax rate was increased to thirty-nine.6% These limits are determined before the foreign earned income exemption.

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In 2003 the JGTRRA, or Jobs and Growth Tax Relief Reconciliation Act, was passed, expanding the 10% income tax bracket and accelerating some within the changes passed in the 2001 EGTRRA.

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