Ashton made contributions to a Roth IRA over the course of 32 working years. His contributions averaged $2,400 annually. Ashton
was in the 28% tax bracket during his working years. The average annual rate of return on the account was 8%. Upon retirement, Ashton stopped working and making Roth IRA contributions. Instead, he started living on withdrawals from the retirement account. At this point, Ashton dropped into the 15% tax bracket. Factoring in taxes, what is the effective value of Ashton's Roth IRA at retirement? Assume annual compounding. 1)
$330,608.49
The formula of the future value of an annuity ordinary is Fv=pmt [(1+r)^(n)-1)÷r] Fv future value? PMT 2400 R 0.08 T 32 years Fv=2,400×((1+0.08)^(32)−1)÷(0.08) Fv=322,112.49 Now deducte 28% the tax bracket from the amount we found annual tax 2,400×0.28
=672 and tax over 32 years is 672×32
=21,504. So the effective value of Ashton's Roth IRA at retirement is 322,112.49−21,504=300,608.49
