Invest in traditional individual retirement account

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Reference no: EM131861758

1. Mechanical engineering student A graduates and gets a job working for an annual wage of $60,000. Student A decides to invest in a traditional individual retirement account (IRA) which allows pretax contributions up to $5,500 per year (saving ~$1800 per year on income taxes). Student A makes the maximum contribution for 5 years. Then student A has kids and no longer can afford to contribute. Twenty-five years later student A retires having never again contributed to the IRA. Assuming Student A retires 30 years from initially starting work and had an average 10% annual return on investment, how much is the IRA worth when Student A retires?

2. ME student B graduates and gets a job working for an annual wage of $60,000. Student B decides to invest in an IRA and makes an annual contribution of $2,000 for all 30 years until retirement. Assuming Student B retires 30 years from initially starting work and had an average 10% annual return on investment, how much is Student B’s IRA worth when Student B retires?

Reference no: EM131861758

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