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Kit made contributions to a Roth IRA over the course of 30 working years. His contributions...

Kit made contributions to a Roth IRA over the course of 30 working years. His contributions averaged $4,000 annually. Kit was in the 24% tax bracket during his working years. The average annual rate of return on the account was 6%. Upon retirement, Kit stopped working and making Roth IRA contributions. Instead, he started living on withdrawals from the retirement account. At this point, Kit dropped into the 15% tax bracket. Factoring in taxes, what is the effective value of Kit's Roth IRA at retirement? Assume annual compounding.

Answer choices:

A. $287,432.74

B. $305,432.74

C. $240,336.88

D. $298,232.74

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Answer #1
ANSWER: C. $ 240336.88
as explained below:
Effective value of Kit's Roth IRA at retirement
assuming annual compounding,
is the Future value of ordinary annuity of
4000*(1-24%)=3040
at 6% p.a
for 30 annual periods
Using FV of ordinary annuity formula,
FVoa=Pmt.*((1+r)^n-1)/r
4000*(1-24%)*(1.06^30-1)/0.06=
240336.89
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