John Johnson begins contributions $ 4,000 into his Rota IRA on his 20 birthday.
ID: 2804717 • Letter: J
Question
John Johnson begins contributions $ 4,000 into his Rota IRA on his 20 birthday. He plans to contribute $ 4,000 each year until he becomes 55 years old (35 deposits). Mr Johnson plans to wait until he is 65 (10 more years) before starting to take distributions. If his account earns 6% annual interest each year,
a) what is the value of his Roth IRA at the age of 55?
b) What is the value of his Roth IRA at the age of 65?
c) If he continues to earn 6% on his account, what is the maximum amount of his monthly distribution for the next 20 years?
Explanation / Answer
a) N = 35
PV = 0
rate = 6%
PMT = 4000
use FV function in Excel with type as 1
value at age 55 = 472,483.47
b) in above replace N = 45
value at age 65 = 902,032.50
c) if he invests till 55
N = 240
FV = 0
rate = 6%/12
PV = 472,483.47
use PMT function in Excel with type = 1 assuming withdrawals at the beginning
withdrawals = 3368.18
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