Faith wants to retire in 35 years. She makes annual contributions to a Roth IRA in the amount of $3,950. She is taxed at 35% today but anticipates that will change to 25% in her retirement. If the average annual rate of return on the account is 6.3%, what is the net value of Faith's IRA account when she retires?

Option A: $305,053.33
Option B: $351,984.61
Option C: $420,925.32
Option D: $434,750.32

I did do the FVOA formula which got me $469,312.82 which doesn't match any of the answers but I don't exactly know how to figure out her net value?

Question

Faith wants to retire in 35 years. She makes annual contributions to a Roth IRA in the amount of $3,950. She is taxed at 35% today but anticipates that will change to 25% in her retirement. If the average annual rate of return on the account is 6.3%, what is the net value of Faith's IRA account when she retires?

Option A: $305,053.33
Option B: $351,984.61
Option C: $420,925.32
Option D: $434,750.32

I did do the FVOA formula which got me $469,312.82 which doesn't match any of the answers but I don't exactly know how to figure out her net value?

AZ · Answer

The FVOA is indeed $469,312.82 so good job!

But once she retires, she'll be taxed at 25% so you have to subtract that

469,312.82 - (0.25 * 469,312.82) = ??

(That's the same thing as 0.75 * 469,312.82 if you want to save steps in calculating the number)

redsky · Answer

Oh! That explains why I wasn't getting the answer. Thank you so much!

AZ · Answer

You're welcome!!