Slide 1

Individual Retirement Accounts Erin Rideout IRAs (Individual Retirement Account) Slide 2 How does an IRA work? 1. Invest money in an IRA up to allowable amounts (contributions). 2. The contributions grow tax-free in the account until the money is withdrawn from the IRA account. 3. A distribution is when money is withdrawn from an IRA account. http://ira.com/faq/faq-02.htm Slide 3 What are IRAs invested in? Mutual funds or stocks: People who invest in these usually have more time before they take the money out of their IRA. If they start investing young. If they still have a long time before retirement. CDs: Often have lower long term benefits than mutual funds or stocks. http://banking.about.com/od/investments/a/ira.htm Slide 4 What are the different types of IRAs? Traditional IRA: There is a tax deduction for contributions put into the account, which lowers a persons taxable income. When money is withdrawn from the account it is included in taxable income. If money is withdrawn before age 59 there is a 10% tax early distribution fee. A person must be 70 to withdraw money with no fees. Nondeductible IRA: Contributions are not tax deductible, but the account savings accumulate without tax. Parts of the distributions are a tax free return, while others are taxed as income. Roth IRA: No deductions for contributions. However, there are no taxes on the money accumulating on the account. SEP IRA (Simplified Employee Pension): Employers set up these plans and make contributions to them. It is set up like a traditional IRA inside of another IRA plan. They have higher contirbution limits than traditional IRAs. http://taxes.about.com/od/retirementtaxes/qt/IRA.htm Slide 5 Types of IRAs continued Simple IRA: Easier to set up than 401(k) plans or pension plans. However, they have lower contribution limits than other group retirement plans and distributions are taxed as income. Educational IRA: $500 annually can be put into these IRAs and accumulate tax free. However, strict limitations include who can contribute to them, how much can be contributed, and what qualifies as an educational expense. http://taxes.about.com/od/retirementtaxes/qt/IRA.htm http://ira.com/faq/faq-03.htm Slide 6 Is there any insurance on IRAs? IRAs are covered up to $250,000 if money was invested in CDs or Money Market accounts, not mutual funds, stocks, bonds, or annuities. When taxes are paid before an investment is made (non qualified account), and IRA is covered up to $100,000. http://wiki.answers.com/Q/How_much_insurance_is_provided_for_IRA_acco unts_by_the_FDIC Slide 7 Who is eligible to open and IRA? Any person can open an IRA as long as: They have taxable earned income during that year. Their spouse has a taxable earned income for that year. Not including Social Security benefits or retirement or pension distributions. They were not 70 at the end of that year. http://ira.com/faq/faq-04.htm Slide 8 How much can be contributed to an IRA? Contributions can be up to $5,000 of all taxable income. Whichever amount is less is what a person is allowed to contribute. http://www.domini.com/learning-planning/Investing-for- Retirement/Traditional_IRA_Can_I_Contribute.doc_cvt.htm Slide 9 How much time is allotted to deposit 401K proceeds into an IRA before it is taxable income? 60 days is the maximum to roll over your distribution. The easiest way is to have a company administrator wrote a check to the IRA Rollover account to ensure that nothing can be used as taxes. http://ira.com/faq/faq-07.htm Slide 10 Pros and Cons of IRAs A person can have multiple IRA accounts at different institutions. A person can NEVER borrow funds from an IRA. http://ira.com/faq/faq-07.htm http://ira.com/faq/faq-21.htm Slide 11 What fees are associated with IRAs? Fees often depend on the services and benefits that the IRA supplies: Some accounts dont charge any fees. Some charge $10 per fund. Some charge $35-$60 per account. http://ira.com/faq/faq-09.htm Slide 12 Can a person sell the stock in their brokerage account and then buy it in their IRA? Brokerage Account: An account in which a person invests in stocks, bonds, or mutual funds by hiring professionals to buy and sell items you ask them to. This is not allowed because: Non IRA accounts can never be mixed with IRA accounts. This is considered self dealing, which illegal. Self-dealing: Illegal transaction of money for ones own benefit, but not to the benefit of the beneficiaries. http://www.mcf.org/publictrust/legalFAQs_selfdealing.htm http://beginnersinvest.about.com/cs/brokers1/f/wtisbrokeracct.htm http://ira.com/faq/faq-10.htm Slide 13 Differences between Educational IRAs and 529 Accounts Educational IRAs529 Accounts Holders ControlIf the money transferred isnt used for education, than the beneficiary gets it at age 30. When withdrawals will be made and why. No restrictions on when funds must be used. Age LimitsUnder 18 to receive contributions. Must use assets before age 30. None. Contribution Limits$2,000 per year.Between $100,000 and $350,000. Income Limits for Contributors Yearly income must be less than $95,000 for single filers and less than $190,000 for married filers. None. Plan AssetsCould be used for K-12 through 2010. Only used for higher education starting in 2011. Higher education. Investment OptionsStocks, bonds, mutual funds, CDs. No limits on investment changes. Stocks, bonds, mutual funds, CDs, Can only change investments twice per year. http://cashmoneylife.com/2009/03/11/college-savings-plans-529-vs-coverdell-esa/ Slide 14 What happens when too much is contributed to an IRA? Withdraw some or all money from plan. Set it aside for next years contributions. Taxpayers have until the date for filing tax returns to withdraw extra contributions. In the case that this doesnt occur there is a 6% penalty annually. http://ira.com/faq/faq-12.htm Slide 15 What are the implications for my estate if I leave my investments in my IRA? The IRA can be rolled over to a spouse with no taxation to the deceased, the property, or the beneficiary. If there is no spouse or the spouse dies while still owning the IRA, it usually becomes taxed highly. Beneficiaries must take taxable distributions within a certain period of time after their inheritance or the IRA. http://ira.com/faq/faq-13.htm Slide 16 Benefits of converting from a Traditional IRA to a Roth IRA 1. Contributions can continue after the age of 70 in a Roth IRA, but must stop at age 70 in a Traditional IRA. 2. No distribution requirements for funds in a Roth IRA account. 3. Roth IRAs have no taxation or penalties after it has been open for at least 5 years. http://ira.com/faq/faq-15.htm Slide 17 Disadvantages of converting from a Traditional IRA to a Roth IRA 1. The amount converted from the Traditional IRA into the Roth IRA can be taxable as a source of income. 2. There is no conversion penalty unless the full amount of the distribution from the Traditional IRA is not put into the Roth IRA. 1. The penalty is 10% of amount not converted into the Roth IRA. http://ira.com/faq/faq-16.htm Slide 18 How to decide on an IRA Deciding on an IRA depends on: Taxable income Age Family status Married, single. Etc. http://ira.com/faq/faq-17.htm Slide 19 How to open an IRA Trustees or Custodians are organizations that can open IRAs. IRAs can also be opened through a bank, savings and loan association, or an insured credit union. Opening an IRA must be done through a written document and it must be done in the United States. http://ira.com/faq/faq-18.htm Slide 20 What is an IRA rollover? A rollover is when a qualified plan or another IRA is put into a rollover IRA. Only one can be done every year. http://ira.com/faq/faq-20.htm Slide 21 Are taxes paid on the money in an IRA? Traditional IRA: Taxes are paid when money is distributed. This means taxes are paid on every cent that is withdrawn. Roth IRA: Taxed as income rate and calculated with tax return. http://www.life123.com/career-money/savings-retirement/IRA/when-do-you- pay-taxes-on-a-roth-ira.shtml Slide 22 Quiz Q. What are IRAs invested in? A. Mutual funds, stocks, CDs. Q. What are the six types of IRAs? A. Traditional, Non-deductable, Roth, SEP, Simple, Educational. Q. What is the criteria for opening an IRA? A. You must have a taxable income and a person cant be 70 at the end of that year. Q. How does a person compensate for contributing too much to their IRA? A. Withdraw the money r set it aside for other contributions. Q. How does a person decide if an IRA is right for them? A. It depends on taxable income, age, and family status. Slide 23 Additional Information Traditional IRAs are generally funded with pre-tax dollars, while Roth IRAs are funded with post-tax dollars. This means that in a Traditional IRA the money is taxed when its withdrawn. In a Roth IRA the money is not taxed when its taken out because it was previously taxed. Roth IRAs are better if a person thinks that their taxes are currently lower than they will be when they retire. http://answers.mint.com/roth-vs-traditional-ira Slide 24 Slide 25 Slide 26 Additional Information A person can have an income of roughly $150,000 or less to open a Roth IRA. Contributions can be $6,000 or less a year. http://www.rothirarules.net/roth-ira-contribution-limits.htm Slide 27 Additional Information A person might do an IRA rollover if they are leaving a job and have a 401K plan with that company. To avoid taxes they can cash out their 401K money and roll it over into an IRA. http://www.howtodothings.com/finance-real-estate/how-to-rollover-401k- funds-into-an-ira Slide 28 Additional Information The penalty of withdrawing money from an IRA before age 591/2 is a 10% early withdrawal fee on the amount of the distribution. http://www.fool.com/money/allaboutiras/allaboutiras07.htm Slide 29 Additional Information A person can still open an Roth IRA after age 701/2, unlike in a Traditional IRA. http://www.ehow.com/facts_5755730_age-can-open-ira_.html Slide 30 Additional Information The FDIC (Federal Deposit Insurance Corporation) insures IRAs up to $250,000. http://www.ehow.co.uk/about_7277205_iras-covered-fdic_.html Slide 31 Additional Information You can control investments within your own IRA. http://banking.about.com/od/investments/a/ira.htm