An individual is considering contributing $4,000 per year to either a traditional or a Roth IRA. Payments would begin in one year. If she uses the traditional IRA, her contributions would be fully deductible. She is 40-years old and is in a 28 percent tax bracket. On either IRA she can earn 7 percent. When she retires at age 65, she believes she will be in a 15 percent tax bracket. She invests not only the $4,000 per year, but any tax savings due to the deductibility of her contributions in a taxable investment earning a pretax rate of 7 percent. She will withdraw all her money upon retirement and may owe taxes then, depending on the type of IRA chosen.
An individual is considering contributing $4,000 per year to either a traditional or a Roth IRA. Payments would begin in one year. If she uses the traditional IRA, her contributions would be fully deductible. She is 40-years old and is in a 28 percent tax bracket. On either IRA she can earn 7 percent. When she retires at age 65, she believes she will be in a 15 percent tax bracket. She invests not only the $4,000 per year, but any tax savings due to the deductibility of her contributions in a taxable investment earning a pretax rate of 7 percent. She will withdraw all her money upon retirement and may owe taxes then, depending on the type of IRA chosen.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:An individual is considering contributing $4,000 per year to either a traditional or a
Roth IRA. Payments would begin in one year. If she uses the traditional IRA, her
contributions would be fully deductible. She is 40-years old and is in a 28 percent tax
bracket. On either IRA she can earn 7 percent. When she retires at age 65, she
believes she will be in a 15 percent tax bracket. She invests not only the $4,000 per
year, but any tax savings due to the deductibility of her contributions in a taxable
investment earning a pretax rate of 7 percent. She will withdraw all her money upon
retirement and may owe taxes then, depending on the type of IRA chosen.
What is the after-tax future value of the traditional IRA including the invested tax
deductions?
Group of answer choices
$237,545.47
$268,796.81
$215,046.73
$245,384.26
$252,996.15
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