traditional iras
DESCRIPTION
TRADITIONAL IRAs. PLEASE DO NOW …. In your notebooks, please answer the following questions: If you buy a stock for $10 and then sell it for $15, what is your NET gain? Explain. How many years does it take for $10,000 to double in value if your yearly gain is 12%?. PLEASE DO NOW…ANSWER. - PowerPoint PPT PresentationTRANSCRIPT
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PLEASE DO NOW…
In your notebooks, please answer the
following questions:
1.If you buy a stock for $10 and then sell it for $15, what is your NET gain? Explain.
2.How many years does it take for
$10,000 to double in value if your
yearly gain is 12%?
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PLEASE DO NOW…ANSWER
1.If you buy a stock for $10 and then sell it for $15, what is your NET gain? It’s not $5. What tax bracket are you in???
2.How many years does it take for
$10,000 to double in value if your
yearly gain is 12%?
Rule of 72: 72 / Interest Rate = Number of
Years to Double
72 / 12% = 6 years
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TODAY’s GOALS
• What is a Traditional IRA?
• Who is eligible to establish a Traditional IRA?
• How can we contribute to a Traditional IRA?
• What is a rollover?
• What are distributions?
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INVESTMENT MANAGEMENT STANDARD(S)
Achievement Standard: Evaluate savings and investment options to meet short and long-term goals.
Achievement Standard: Evaluate services provided by financial deposit institutions to transfer funds.
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WHAT IS A TRADITIONAL IRA?
A retirement account where contributions are tax-deductible and earnings grow on a tax-deferred basis.
An excellent supplement to an individual’s retirement income.
Assets in the traditional IRA are not taxed until they are withdrawn.
The Benefits of Traditional IRAs Video
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WHO IS ELIGIBLE TO ESTABLISH A TRADITIONAL IRA?
Any individual, regardless of age, who has taxable compensation for the year and will not reach age 70 ½ by the end of the year.
Any individual, regardless of age, who has self-employment income for the year and will not reach age 70 ½ by the end of the year.
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HOW CAN WE CONTRIBUTE TO A TRADITIONAL IRA?
1)Make a contribution to your IRA account.
2)Make a contribution to your spouse’s IRA account.
3)Transfers between IRA accounts.
4)Rollover contributions.
Why would I want to do that?!
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WHAT IS A ROLLOVER?
A rollover is a tax-free movement of assets between retirement plans.
A direct rollover is a rollover from a qualified plan, such as a 401(k).
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WHAT ARE DISTRIBUTIONS?
A removal of assets from a retirement account that is paid to the retirement account owner.
In general, distributions from a traditional IRA must occur after age 59½.
In general, distributions that occur before 59½ will be charged a 10% early distribution penalty.
There are some exceptions to the 10% penalty rule.
A traditional IRA owner must begin required minimum distributions (RMDs) the year he or she reaches age 70½.
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LET’s PRACTICE…
Jack, age 61, takes a $6,000 distribution from his traditional IRA. His income tax bracket is 35%. How much will he be taxed on the distribution?
Solution:
Taxes on Traditional IRA Distributions= Amount of Distribution * Income tax rate
Taxes on Traditional IRA Distributions= $6,000 * 35%
Taxes on Traditional IRA Distributions= $2,100
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LET’s PRACTICE MORE…
Jason, age 56, takes a $6,000 distribution from his traditional IRA. His income tax bracket is 35%. How much will he be taxed on the distribution?
Solution:
Taxes on Traditional IRA Distributions= Amount of Distribution * Income tax rate
Taxes on Traditional IRA Distributions= $6,000 * (35%+10% penalty)
Taxes on Traditional IRA Distributions= $6,000 * 45%
Taxes on Traditional IRA Distributions= $2,700