Yon made contributions to a Traditional IRA over the course of 15 working years. Her contributions averaged $4,000 annually. Yon
was in the 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. 1)
$141,367.11
First find the future value of an annuity ordinary using the formula of Fv=pmt [(1+r)^(n)-1)÷(r)] Fv future value? PMT 4000 R 0.05 N 15 years Fv=4,000×(((1+0.05)^(15)−1)÷(0.05)) Fv=86,314.25
Then deducte the 15% tax bracket from the amount we found to get the effective value of Yon's traditional IRA at retirement 86,314.25−86,314.25×0.15 =73,367.11
