Question

Faith wants to retire in 35 years. She makes annual contributions to a Roth IRA in the amount of $3,950. She is taxed at 35% today, but anticipates that will change to 25% in her retirement. If the average annual rate of return on the account is 6.3%, what is the net value of Faith's IRA account when she retires?

A. $305,053.33

B. $351,984.61

C. $420,925.32

D. $434,750.32

Please help!!!!

Answer 1

Future Value of an Ordinary Annuity
= C*[(1+i)^n-1]/i
Where,
C= Cash Flow per period
i = interest rate per period
n=number of period
= $3950[ (1+0.063)^35 -1] /0.063
= $3950[ (1.063)^35 -1] /0.063
= $3950[ (8.4852 -1] /0.063]
= $469,312.82
Net Value after tax = $469312.82*(1- 0.25)
$ 351,984.61
Correct Option = B.$351984.61