Question

# Faith wants to retire in 35 years. She makes annual contributions to a Roth IRA in...

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!!!!

#### Homework Answers

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
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