IRAs are Individual Retirement Accounts that allow an investor to invest a certain amount of money each year before the money is taxed. The annual contributions therefore lower the individual's taxable income, reducing annual taxes due to the government. Money that accumulates in an IRA earns an annual return, so that at retirement the individual can withdraw the investment that has grown over time. Microsoft Excel has a function called Future Value, or FV, that quickly calculates the expected value of an IRA in the future.
Open a blank worksheet in Excel by selecting the "File" tab and clicking "New."
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Type the following labels into cells A1, A2, A3, A4 and A5:
Present Value Annual Investment Annual Rate Years Future Value
Enter the number "-5000" into cell B1 to represent an initial investment into an IRA account of $5,000.
Enter the number "-5000" into cell B2 to represent annual investments into the account.
Enter the number "0.05" into cell B3 to represent an annual interest rate of 5 percent.
Enter the number "20" into cell B4 to represent 20 years of investment time for the account.
Enter the function "=FV(B3,B4,B2,B1)" (without quotes) into cell B5. This is the Future Value function, and gives an answer of 178,596, which means that this account will be worth $178,596 in 20 years using these exact assumptions.