Sylvia makes a one-time $2,000 deductible contribution into a deductible traditional IRA account,which will earn 8% annually before taxes.Twenty-five years later,at age 65,she withdraws all of the accumulation from the IRA when she is in the 15% marginal tax bracket.What is the total of her after-tax accumulated proceeds from the IRA?
A)$6,000
B)$8,541
C)$11,642
D)$13,697

Question

Quizplus · Accepted Answer

The future value of the IRA is calculated using the formula for compound interest: FV = P(1 + r)^n, where P is the principal amount ($2,000), r is the annual interest rate (0.08), and n is the number of years (25). This gives FV = $2,000(1 + 0.08)^25 = $13,697. After withdrawing, Sylvia pays 15% tax on the entire amount, so the after-tax amount is $13,697 * (1 - 0.15) = $11,642.

Sylvia Makes a One-Time $2,000 Deductible Contribution into a Deductible