Question

You made contributions to a traditional IRA over the course of 15 working years. Her contributions averaged $4000 annually. Yon was in a 29% tax bracket during her working years. The average annual rate of return on the account was 5%. Upon retirement, Yon stopped working and making IRA contributions. Instead, she started living on withdrawals from the retirement account. At this point, Yon dropped into the 15% tax bracket. Factoring in taxes, what is the effective value of Yon's Traditional IRA at retirement? Assume annual compounding.

A= $74,230.25
B= $25,031.13
C= $73,367.11
D= $141,367.11

Answer 1

4,000×((1+0.05)^(15)−1)÷0.05
=86,314.25
86,314.25−86,314.25×0.15
=73,367.11

Answer 2

The answer is : C= $73,367.11

Explanation:

We will first find the future value of the annuity.

The formula is :

Fv = pmt [(1+r)^(n)-1)÷(r)]

pmt = $4000

r = 5% or 0.05

n = 15 years

Putting these values in the formula, we get:

`4000(((1+0.05)^(15)-1 )/(0.05)`

= $86,314.25

Now we will deduct the 15% tax on 86314.25 from $86,314.25

`[(86314.25)-(86314.25*0.15)]`

`86314.25-12947.13=73367.12` close to option C.

So, option C is the correct answer.