Posted by **peter** on Sunday, December 11, 2011 at 1:31pm.

suppose you deposited $3000 of earned income into an IRA, you can earn an annual interest rate of 8%and you are in a 40% tax bracket (Note:interest rates and tax brackets are subject to change over time, but some assumptions must be made to evaluate the investment) Also, change over time, but some assumptions must be made to evaluate the investment) Also, suppose you deposit the $3000 at age 25 and withdraw it at age 60.

1. How much money will remain after you pay the taxes at the age 60?

2. Suppose that instead of depositing the money into the IRA, you pay taxes on the money and the annual interest. How much money will you have at age 60? ( note: You effectively start with 1800(60% 3000) and the money earns 4.8%(60%of 8%) interest after taxes.

3. To the nearest dollar, how much additional money will you earn with IRA?

4. Suppose you pay taxes on the original %3000, but then able to earn 8% in a tax-free investment. Compare your balance at age 60 with the IRA balance.

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