Question

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


2)
$25,031.13


3)
$74,230.25


4)
$73,367.11

Can someone please tell me how to solve this?

Answer 1

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