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Solid Finances Sponsors

Solid Finances Sponsors. MSU Extension This program is made possible by a grant from the FINRA Investor Education Foundation through a partnership with United Way Worldwide. IRAs, 457s & 403b Plans. Joel Schumacher Sponsored by: MSU Extension. Schedule. Estate Planning

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Solid Finances Sponsors

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  1. Solid Finances Sponsors • MSU Extension • This program is made possible by a grant from the FINRA Investor Education Foundation through a partnership with United Way Worldwide.

  2. IRAs, 457s & 403b Plans Joel Schumacher Sponsored by: MSU Extension

  3. Schedule • Estate Planning • Think you know who gets your property when you die? Think Again. • March 8th • Power of Attorney, Trusts and More • March 22th • Wills, Living Wills, End of Life Registry, Advance Directives & POLST • April 5rd • Estate Planning Tools & Tips • April 19th

  4. Question A:IRA represents Individual Retirement Account • True • False

  5. IRA • IRS Terminology: Individual Retirement Arrangement • Everybody Else’s Terminology: Individual Retirement Account

  6. Two Types of IRAs • Traditional IRAs • Deductible: • Contributions are deductible on your taxes in the year in which they are made. • Non-Deductible: • Contributions are not deductible or are only partially deductible in the year in which they are made. • Roth IRAs • Contributions are not tax deductible. • Withdrawals are tax free.

  7. Question B: Do you currently have a • Traditional IRA • Roth IRA • Roth & Traditional • Neither

  8. How much can I save? • 2011 & 2012 Contribution Limit • $5,000 • 2011 & 2012 Catch-up Limit • Must be age 50 or over • $1,000

  9. Contribution to an IRA • Contributions can be made during the year or until due date for income tax returns for that year • Eligible dates for 2011 IRA contributions are: • January 1, 2011 to April 17, 2012

  10. Who is eligible? Requirements: • You must have taxable income • You cannot be age 70 ½ or older • Age limit does not apply to Roth IRAs • You must meet income limits

  11. Traditional IRAs • Income Limits (Adjusted Gross Income) • Single: • Full Deduction: $58,000 or less • Partial Deduction: $58,000 to $68,000 • No Deduction: $68,000 or more • Married Filing Jointly: • Full Deduction: $92,000 or less • Partial Deduction: $92,000 to $112,000 • No Deduction: $112,000 or more

  12. Traditional IRAs • Exception to these rules if you are not covered by a retirement plan at work. • Special Rules for Spouses • A spouse with no income can contribute in some cases. A joint tax return must be filed.

  13. Traditional IRA How it works: 1. Make a contribution 2. Report your contributions on your income taxes • The contribution is deducted from your taxable income • This lowers the federal and state taxes you owe 3. Account grows tax free 4. Withdrawals are taxed as regular income

  14. Question C: Do the partial or no deduction rules apply to your situation? • Yes • No • Maybe

  15. Roth IRAs • 2012 Income Limits (Adjusted Gross Income) • Single: • Full Contribution Limit: $110,000 or less • Partial Contribution Limit: $110,000 to $125,000 • Not Eligible: $125,000 or more • Married Filing Jointly: • Full Contribution Limit: $173,000 or less • Partial Contribution Limit: $173,000 to $183,000 • Not Eligible: $183,000 or more

  16. Roth IRAs How it works: 1. Make a contribution 2. Your taxable income remains the same 3. Your account grows tax free 4. Distributions are tax free

  17. Withdrawing IRA Funds • When can I withdraw my money? • Anytime • However, Non-Qualified withdrawals are assessed a 10% penalty • Withdrawals from a traditional IRA are included in income

  18. Withdrawing Money A 10% penalty is imposed unless the individual meets one of these: • Age 59 ½ or older • Disabled • Deceased • First Time Home Purchase ($10,000 maximum) • Higher education expenses • Qualified Medical Expenses (over 7.5% of gross income) • Qualified Health Insurance Premiums (while unemployed) • Distributions are received in the form of an annuity

  19. Extra Rule for Roth’s • 5-Year Test • Withdrawal must be 5 or more years after the first contribution was made. • Example: • Janice opens a Roth IRA at age 58 in 2012. • She retires at age 61 in 2015. • She will have to pay a 10% penalty if she withdrawals funds before 2017.

  20. Question D: When do you have to start taking Required Minimum Distributions? • Age 65 • Age 67 • Age 70 ½ • Age 75 • When you claim Social Security Benefits

  21. Required Minimum Distributions (RMDs) • Only applies to traditional IRAs • Must be taken for the calendar year in which you reach age 70 ½ and each year after that • Calculating RMDs: • January 1st balance divided by a factor from an IRS Table. The factor gets smaller as you get older. • Your IRA Custodian will likely calculate this for you.

  22. Which is best for me? • Tax Rates • Current and During Retirement • Eligibility • Higher earners may not be eligible for traditional • Diversification • The bulk of most people retirement savings is “pre-tax”; a Roth is “post-tax”

  23. Question E: Do you expect to have lower income during retirement? • Yes • No • Not Sure

  24. Question F: Do you expect to pay a higher marginal income tax rate during retirement? • Yes • No • Maybe

  25. Converting to a Roth IRA • You can convert a Traditional IRA to a Roth IRA • Why? You changed your mind on which is better for you. • You can convert some or all of your Roth.

  26. Converting to a Roth IRA 1. Contact your current IRA custodian. 2. Tell them how much you want to convert. 3. They will transfer the funds to a Roth account for you. 4. You need to report the conversion as regular income. • No early withdrawal penalties apply • You will need to pay taxes on the conversion amount

  27. Roth IRA Conversion Example • Jim Earns $30,000 in 2012 • Converts $3,000 from his traditional IRA to a Roth • Jim’s taxable income is increased to $33,000 • This increases Jim’s taxes by $657 Jim’s Federal Income Tax Rate: 15% 15%x $3,000 = $450 Jim’s State Income Tax Rate 6.9% 6.9% x $3,000 = $207

  28. Rollover IRAs • IRAs can be funded by transferring funds from: 1. Your account in a former employer’s retirement plan 2. From another IRA • No tax implications if done correctly

  29. IRA QuestionsFor More Information:IRS Publication 590

  30. Employer Plans • Most employer plans allow an employee to select their contribution level • For example: 5% of compensation; 10% of compensation; or $250 per month • IRS has maximum employee contributions • 2012 Limit: $17,000 • Catch-Up Contributions are allowed • 2012 Limit: $5,500 • Must be Age 50 or older

  31. MUS Retirement Plans • Your job “classification” and your hire date determine your MUS retirement plan. • MUS Standard Retirement Plans • Public Employees Retirement System (PERS) • TIAA-CREF • Teachers Retirement System (TRS) • Federal Employees Retirement System (FERS) • Civil Service Retirement System (CSRS)

  32. MUS Supplemental Retirement Plans Section 403b Plans • ING • MetLife • TIAA-CREF • Valic-American General Section 457 Plan • Great-West Retirement Services

  33. Question G: University System Employees:Do you participate in a Supplemental Plan Retirement Plan? • Yes • No • Not currently, but I have in the past

  34. Contributions • Contributions are Tax Deductible • Withdrawals are taxable • Annual Maximum Limits for 403(b) Plans • $17,000 per year • $5,500 per year “catch-up” if you are age 50 or older • Limit applies to all supplemental 403(b) plans

  35. Contributions • % of salary or fixed amount each month • Example: 2% of pay or $75 each month • Must fill out a new form each year • Amount can be changed during the year

  36. 457 Plan • $17,000 annual maximum deferral amount • $5,500 additional catch-up contributions are allowed for those over 50 • Special rules for those within 3 years of the plan’s normal retirement age. These rules may allow for additional deferrals of up to $17,000 annually for 3 years.

  37. Questionswww.msuextension.org/solidfinances/

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