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Instructions: Step 1 Read the entire assignment. Step 2 Compute the purchasing power of both the IRA and the converted Roth IRA under both scenarios
Instructions: Step 1 Read the entire assignment. Step 2 Compute the purchasing power of both the IRA and the converted Roth IRA under both scenarios Compute the purchasing power in an IRA versus an IRA that has been converted to a Roth IRA. Compute the following: 1) The purchasing power of both the IRA and the converted Roth IRA on the day of the conversion of one of the accounts to a Roth IRA. 2) The purchasing power of the IRA and converted Roth IRA 20 years in the future. BACKGROUND: Compute the purchasing power for each of them today (immediately after Lucy completes the conversion). Based on the assumptions below, forecast the purchasing power each of them will have in their IRA or Roth IRA account 20 years from today. ASSUMPTIONS: --20 years from now, Ricardo and Lucy will both be in the 24% marginal tax bracket. --Assume they will both withdraw the full balance(s) of their IRA and Roth IRA accounts at the end of 20 years, so that they can spend the money. --Each of their IRA/Roth IRA accounts will earn 11.0% over the next 20 years. --Each of them will add $6,000 per year to their IRA or Roth IRA for the next 20 years. --Each of their savings accounts will earn zero interest (0.00%) over the next 20 years. --Include the value of the savings accounts in the computation of purchasing power. NOTE any further adjustments or assumptions you make at the bottom of the sheet in the section titled "assumptions
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