Roth IRA
1. Describe the retirement plan.
Roth IRA is a retirement plan that allows you to grow your account without tax. The way this works is, your money is taxed before it is put into the account, instead of after.
2. Is this retirement plan tax deferred?
No, It is not tax deferred because your money is already taxed when you put in the account.
3. When are you allowed to take money out of this retirement plan?
One of the best parts of this retirement plan is that there is no limitation to when you can start taking out money. You can take it out whenever. This can be good and bad, because most people start taking out money before retirement at around the age of 59.
4. Is there a maximum contribution per year? What is the maximum contribution if any?
Yes, it’s $5,500 per year. But if you're older than 50 years old, than it’s $6,500 per year.
5. Do you get paid from this retirement plan for life?
No, when it runs out, then you're as good as dead.
6. Can you leave the money in this account after retirement?
yes, you can leave the money for your inheritors.
7. Is there a monthly minimum amount you have to withdrawal during retirement
and how much is it?
No, there is no monthly minimum amount you have to withdraw.
8. What are the advantages and disadvantages of this retirement plan?
The main advantage is that your account won't be taxed after you withdraw your money because it taxes it before you put in the money. It’s also great for procrastinators, Roth IRA allows you to contribute to up until tax day of the following year. Some disadvantages include the fact that your retirement plan will not be tax deductible. Also, you can't put as much money in your account as you might want because there are yearly limitations.
401k
1. Describe the retirement plan.
401k is a retirement plan set up by your employer. A percentage of your paycheck will be put into your account for when you retire.
2. Is this retirement plan tax deferred?
Yes, the 401k retirement plan is tax deferred.
3. When are you allowed to take money out of this retirement plan?
You can take out money whenever but if you take out some before you are 59 ½ years old there will be a 10% penalty fee. Once your are 70 ½ you are forced to take out money,.
4. Is there a maximum contribution per year? What is the maximum contribution if
any?
Yes, it’s $18,000 a year. But, if you’re older than 50 than it rises to $53,000 a year.
5. Do you get paid from this retirement plan for life?
It depends on your employer, about 12% of employers who use 401k offer lifetime payment.
6. Can you leave the money in this account after retirement? If not, when do you
have to close the account?
Yes, as long as your employer continues to sponsor the 401 k plan. But you can still just add all the fund to another retirement plan if they chose to no longer sponsor it.
7. Is there a monthly minimum amount you have to withdrawal during retirement
and how much is it?
It depends on your life expectancy and the amount of money you have in the account.
8. What are the advantages and disadvantages of this retirement plan?
An advantage is that it is tax deferred so it will continue to grow. Another is that your employer will also put money into your account so it’s not all your own money that you’re saving for retirement. Some disadvantages include the fact that if you withdraw money before retirement, you get a huge fee.
Deferred Annuities
1. Describe the retirement plan. The content should have depth and demonstrates
understanding.
Deferred Annuities is a retirement plan where you pay money for a specific amount of time.
2. Is this retirement plan tax deferred?
Yes, it is tax deferred.
3. When are you allowed to take money out of this retirement plan?
You can take out money when you reach the age you agreed upon.
4. Is there a maximum contribution per year? What is the maximum contribution if
any?
No, there is no maximum contribution per year.
5. Do you get paid from this retirement plan for life?
Yes, you get paid for life.
6. Can you leave the money in this account after retirement? If not, when do you
have to close the account?
Yes, you can put money in this account after retirement.
7. Is there a monthly minimum amount you have to withdrawal during retirement
and how much is it?
You agree on a fixed amount of money when you set up the account, so there is no monthly minimum.
8. What are the advantages and disadvantages of this retirement plan?
Advantages include the fact that when you setup your account all the amounts are predetermined so you wont have to worry about minimums or maximums every year. It’s also tax deferred so that’s also great. A disadvantage is that a fee is given to you if you take out money early.
Traditional IRA
1. Describe the retirement plan. The content should have depth and demonstrates
understanding.
Traditional IRA is a retirement plan that is tax deferred. Your money is taxed after you take the money out of your account. This means the money will grow faster and bigger in your account.
2. Is this retirement plan tax deferred?
Yes, traditional IRA is tax-deferred.
3. When are you allowed to take money out of this retirement plan?
You can take the money out whenever but you will be charged tax when you do your withdrawals. And if you take money out before your 59 ½ the tax is 10% more.
4. Is there a maximum contribution per year? What is the maximum contribution if
any?
If your are under the age of 50 then the maximum contribution is $5,500, but if you're over the age of 50 then it increases to $6,500.
5. Do you get paid from this retirement plan for life?
No, you do not get paid for life.
6. Can you leave the money in this account after retirement? If not, when do you
have to close the account?
Yes, you can leave money in the account after retirement. But once you reach 70 1/2 , minimum amount of withdrawals are required.
7. Is there a monthly minimum amount you have to withdrawal during retirement
and how much is it?
Yes, the minimum amount you have to withdraw depends on your age and life expectancy.
8. What are the advantages and disadvantages of this retirement plan?
The main advantage is that it is tax-deferred so your money can grow faster and bigger in your account. Plus, you can always change to a Roth IRA. Some disadvantages include the fact that you have to meet the requirements for tax benefits, and the taxes that you have to pay when you withdraw your money. Plus, your tax percentage is higher if you withdraw early.
I picked 401k and Roth IRA.
2. Look at your current budget. How much money do you have available to make investments? How much will you invest each month?
I will be a psychologist. they make around $5,829 a month. With all my expenses paid I will have $3,742 to play with every month. So, I will invest 600 a month into my accounts.
401k: I will invest $200 every month because my employer will match that and I will be adding $400 to my account every month.
Roth IRA: I will invest $400 into this account
3. Calculate the amount of money you will have at retirement using an equation for both of your retirement accounts. Assume you are retiring at age 60 and have been making monthly contributions starting at age 35.
Future Value = P [ (1 + r)n - 1 / r ]
401k: 200 [ (1 + 0.00167)300 - 1 / 0.00167 ]
$97,806
ROth IRA: 400 [ (1 + 0.00167)300 - 1 / 0.00167 ]
$155,612
4. How much money will you have saved by the time you retire based on your online budget?
By the time I retire I will have saved $253,418.
5. Payment is different for each retirement plan. How are the payments handled at retirement for your two investments? For example, do you have to pay a fee or are you only allowed to withdraw a certain amount each year?
Roth IRA: I can take out money from this account before the age of 59 as long as there is a valid reason. Bu once I'm 50 I can start taking out money without any restrictions. And the money is already taxed so I wont have to pay that.
401k: At the age of 59 I can withdraw the money from the account, but it will be taxed. I could take out the money before but I would be a fee. 6. Determine your monthly distribution from both accounts at retirement. Assume these investment choices were made at age 35.
Monthly Distribution= Future Value/ 300 months
Roth IRA= $155,612/ 300
= $518
401k = $97,806/ 300
= $326
Total= $844 a month
7. Create a monthly budget for your retirement. Lets assume you are retiring at 60 years of age.
Go to "Budget at Retirement" blog post
8. Will you be able to live comfortably based on your life style at retirement? Provide a clear explanation.
No, I will no be able to live comfortably during retirement. I will only be getting $844 a month and my expenses are approximately $1500.
9. Provide a bibliography for all your research.
“What is a 401(k) plan?” PracticalMoneySkills.com. Practical Money Skills,
n.d. Web. 26 Mar. 2015.
“How does a 401(k) plan work?” Money.CNN.com. MoneyCNN, n.d. Web. 24
Mar. 2015.
Malone, Matthew. “What is a Roth IRA?” rothira.com Retirement Online LLC. n.d. Web. 24 March 2015.
“IRA FAQs – Contributions.” IRS.gov. IRS, 17 Dec. 2014. Web. 26 Mar. 2015.
"Lifetime Income Options: Pension Power for the 401(k)." CFO. N.p., 05 Dec. 2014. Web. 27 Mar. 2015.Website
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