5.3 saving & investing
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Transcript of 5.3 saving & investing
To be able to compare and contrast the options of saving for retirement:
Traditional IRA, Roth IRA, & 401k
“When it comes to the future, there are three kinds of people: those who let it happen, those who make it happen, and those who wonder what happened.”
- John M. Richardson
“
“The best thing about the future is that it comes one day at a time.”
- Abraham Lincoln
Traditional IRARoth IRA401k plan IRA Individual Retirement
Arrangement There are benefits to each
type…
Tax Benefits Your money accumulates
interest that is tax free! You can put in up to $5,000
per year• After age 50, it increases to
$6,000
You can put money into it until April 15th of the next year.
Funded with pre-tax money You pay taxes on the money when you
withdraw the money after retirement Interest is tax free
No income limits Can begin to withdraw funds when you
are 59½ years old with no penalty When you are 70½, you must take
yearly w/d no more contributions after 70½
Funded with after-tax money You pay no taxes when you withdraw
Income limit: less than $101,000 No penalty for early w/d of principle
money You may not w/d the interest until
retirement w/o penalty No age requirement for withdrawals No age requirements for
contributions
Roth IRA You are young Make < $50,000 Your tax rate will be higher
when you retire.Traditional IRA
If your tax rate will be lower when you retire
If you are closer to retirement
Employer-sponsored retirement plan
FREE MONEY!!!!!!! Employer matches contribution
Money is contributed to 401k plan pre-tax Pay taxes when you make w/d after
59½ Cannot w/d before 59½ w/o penalty
http://www.bloomberg.com/personal-finance/calculators/401k/
401k Calculator
You can take a loan from your 401k plan to pay certain expenses Not a good idea!! You will be
taxed twice! You can participate in 401k & IRA
at the same time
1. Explain the difference between the Traditional & Roth IRA.
2. What method would you suggest to Brittany?