Question: 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

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.

1.) What is the after-tax future value of the traditional IRA including the invested tax deductions?

A. $237,545.47

B. $245,384.26

C. $215,046.73

D. $268,796.81

E. $252,996.15

What is the future value of Roth contributions?

A. $268,796.81

B. $252,996.15

C. $245,384.26

D. $285,885.65

E.)$215,046.73

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