P Forecasting the Future Value of Your Roth-IRA or Roth-401 k p

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Forecasting the Future Value of Your Roth-IRA or Roth 401(k)


Summary

Wondering how much you’ll accumulate in your Roth IRA or Roth 401(k)? Author and CPA Stephen L. Nelson suggests using Microsoft Excel for a reliable estimate.

Estimating with Excel


If you want to predict the future value of your Roth retirement account, Microsoft Excel's FV function is an excellent tool. This function calculates the future value of an investment based on interest rate, number of payments, payment amount, present value, and optionally, the type of annuity.

Function Syntax

The FV function uses this syntax:
```
=FV(rate, nper, pmt, pv, type)
```

Example Calculation

Imagine you have an IRA with $20,000 and you contribute $400 monthly. You’d like to know the balance in 25 years, assuming a 10% annual interest rate. To calculate this, enter the following formula in Excel:

```
=FV(10%/12, 25*12, -400, -20000, 0)
```

This will return approximately $772,000.

Key Points

- Interest Rate and Term Conversion: Convert the annual interest rate to a monthly rate by dividing by 12. Similarly, convert the term to months by multiplying the number of years by 12.
- Cash Flows: Monthly payments and initial values are negative, representing outflows, while the result appears positive, indicating a future cash inflow.
- Annuity Type: The last parameter, the type-of-annuity switch, allows you to specify when payments occur. A value of 1 indicates payments at the beginning of the period, while 0 (or omission) means they occur at the end.

Using Excel's FV function, you can easily forecast the future value of your retirement savings, helping you make informed investment decisions.

You can find the original non-AI version of this article here: P Forecasting the Future Value of Your Roth-IRA or Roth-401 k p .

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