Question

*Advance Algebra With Financial Applications*

Kirby made contributions to a Roth IRA over the course of 35 working years. His contributions averaged $2,000 annually. Kirby was in the 26% tax bracket during his working years. The average annual rate of return on the account was 5%. Upon retirement, Kirby stopped working and making Roth IRA contributions. Instead, he started living on withdrawals from the retirement account. At this point, Kirby dropped into the 15% tax bracket. Factoring in taxes, what is the effective value of Kirby’s Roth IRA at retirement? Assume annual compounding.

Answer 1

$170,140.61

$172,940.61

$162,440.61

$133,674.05

Answer 2

this one is tricky, or at least the one that was like it

Answer 3

I was think of just 2000*26%*5%*15% = ?

Answer 4

A roth IRA is such that the interest earned is not taxed; and the contributions to it are taxed prior to making the contribution....

but then i might have a different view of a roth ira then your material

Answer 5

as such, my concept would amount to a 2000 annuity for 35 years

Answer 6

also, had an issue with the term "effective value"

Answer 7

FV = PV(1+i/n)^(nt)

Answer 8

FVOA=2000*(((1+0.05))^1.35-1)/(0.05))

Answer 9

FVOA-D is more like it ....

contributes 2000, before years up ... then applied

Answer 10

Is my formula right ?

Answer 11

theres a typo, but the structure seems valid using an ordinary annuity setup

Answer 12

^35 ... not ^1.35

Answer 13

Tax=26 % of 2000 * 35

Answer 14

the contributions are already taxed .... they dont get taxed again

Answer 15

when i get a paycheck, i dont have to pay taxes on the after tax amount that I get to put into my pocket

Answer 16

0.26 * 2000 * 35

Answer 17

you traditionally get taxed for income that you earn .... not income that you have already earned and already been taxed for

Answer 18

520 * 35

Answer 19

18,200

Answer 20

he would pay that in income

Answer 21

now the final value
we find

Answer 22

180640.6147 - 18,200 = ?

Answer 23

it gave me 162,440.61<-------- :D OMG !! OMG !! I DID IT LOL OMG ! I GOT THE ANSWER ! @amistre64

Answer 24

http://www.wolframalpha.com/input/?i=180640.6147%20-%2018%2C200&t=crmtb01&f=rc

Answer 25

good job then :) still makes no sense from my end tho