Leif started making contributions to a Traditional IRA when he got his first job, at age 32. His contributions averaged $3,200 annually. Leif was in the 20% tax bracket during his working years, when he continued to make these annual contributions. The average annual rate of return on the account was 6.8%. Upon retirement at age 69, Leif stopped working and making IRA contributions. Instead, he started living on withdrawals from the retirement account. At this point, Leif dropped into the 10% tax bracket. Factoring in taxes, what is the effective value of Leif's Traditional IRA at retirement?

Question

anonymous · Answer

A - $440,728.02
B - $305,314.21
C - $438,080.97
D - $391,758.24

tkhunny · Answer

1) "Average contributions" is not particularly useful.

10000 0 0 0 -- Averages 2500
0 0 0 10000 -- Averages 2500
2500 2500 2500 2500 -- Averages 2500

It's a horrible assumptions that hey are all magically the same.

2) Same goes for Average earnings, but it's not as big a problem.

3) The tax bracket during accumulation iis a Red Herring.  Ignore it.

Find your accumulation formula and add it up!