Question

Suppose that Ramos contributes $4500/year into a traditional IRA earning interest at the rate of 5%/year...

Suppose that Ramos contributes $4500/year into a traditional IRA earning interest at the rate of 5%/year compounded annually, every year after age 37 until his retirement at age 67. At the same time, his wife Vanessa deposits $3150/year (the amount after paying taxes at the rate of 30%) into a Roth IRA earning interest at the same rate as that of Ramos. Suppose that Ramos withdraws his investment upon retirement at age 67 and that his investment is then taxed at 30%. (Round your answers to the nearest cent.)

(a) How much will Ramos's investment be worth (after taxes) at that time?

(b) How much will Vanessa's investment be worth at that time?

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Answer #1

Ramos contribute $4500/ year at the end of each year for(67-37) 30 years at 5% interest rate compounded P.A. gives him

Ramos amount at compounded rate before tax A = P*{[(1+r)n-1]/r}*(1+r)

= $4500*{[(1+.05)30-1]/.05}*(1.05)

=$4500*69.760

=$313923.55  at the end of the 30 year period.

Ramos is taxed at 30% ($313923.55*.30) = $ 94177.06 which which will make his investment worth ($313923.55- $94177.06) $219746.48 after taxes.

Venesa $3150/ yr contributed at the end of each year for 30 years at 5% interest rate compounded p.a. give her

Venesa investment value at 67th year of age     A = P*{[(1+r)n-1]/r}*(1+r)

= $3150*{[(1+.05)30-1]/.05}*(1.05)

=$3150*69.760

=$ 308088.9 (After tax only, since deposits were made after tax)



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