49. There is yet another alternative to the two options for saving toward retirement in Exercises 47 and 48. Instead of saving after-tax dollars or contributing to a tax-deferred plan, you can take the money as income, pay income tax on it, and make a deposit into a Roth IRA. For this special kind of retirement account, the interest earned over the years is not taxed. (There are further advantages and disadvantages.)
Suppose that you put $100 per month in after-tax dollars into a Roth IRA account. Assuming the same savings account or safe investment as in Exercises 47 and 48 that pays a steady return of 6% compounded monthly, how much will be in your account, tax-free, at age 65? How does that compare with the answers to Exercises 47a and 48c?
49.
Using the Roth IRA, the entire $199,149.07 calculated in Exercise 47a is yours tax-free at age 65. However, for the situation of Exercise 47, you will still owe tax on the interest earned: , so your tax-free net is $199,149.07 - $48,367.70 = $150,781.37. For the situation of Exercise 48, per the answer to part (c), you have $199,150.67 tax-free.