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Saving for Retirement is Complicated (or is it?)

Discover the benefits of a Roth IRA for retirement savings. Understand how it can provide tax-free withdrawals and flexibility for changing jobs. Learn about contribution limits and potential catch-up provisions.

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Saving for Retirement is Complicated (or is it?)

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  1. Saving for Retirement is Complicated (or is it?) Why a Roth IRA may be a good choice for you!

  2. Please Note • This material is not intended to be used to avoid tax penalties, and was prepared to support the matter addressed in this presentation. The taxpayer should seek advice from an independent tax advisor. • The discussion highlights key issues of the Internal Revenue Code and regulations. The information is provided for your education only and is not intended to be legal or tax advice. Consult your own independent tax and legal advisors regarding your individual situation.

  3. Start with the basic questionsRetirement Planning 101 Why do I need to have my own retirement savings account?

  4. Three questions point to the answers • What percentage of your final expected annual salary would you like to have available for retirement income? • How much of your final expected salary will your state retirement benefit replace? • How much of your final expected salary will Social Security replace?

  5. How much retirement income would you like to have? • What percentage of your final expected annual salary would you like to have available for retirement income? 100% ? 90% ? 80% ?

  6. How large will your retirement benefit be? • How much of your final expected salary will your state retirement benefit replace?

  7. How large will your retirement benefit be? • How much of your final expected salary will your state retirement benefit replace? 45% ? 55% ? 65% ?

  8. How much will Social Security provide? • How much of your final expected salary will Social Security replace? http://www.ssa.gov/myaccount

  9. How much will Social Security provide? • How much of your final expected salary will Social Security replace? 20% ? 25% ? 30% ?

  10. How much additional income will you need? Here is an example:

  11. Start with the basic questionsRetirement Planning 101 Why do I need to have my own retirement savings account?

  12. What was your answer? Q: Why should you have your own retirement savings account? A: Because the combination of your retirement benefit and Social Security will probably not provide the level of income you desire.

  13. OK, but where should I put my savings?

  14. Two possible choices Roth IRA Or 403(b) NOTE: IRA – an Individual Retirement Account

  15. Seven things to consider • Will I pay federal income taxes now on the amount I contribute? • Will I pay federal income taxes on withdrawals? • Who chooses the investment product I can use? • Can I keep my account even if I change jobs? • Is my ability to withdraw money limited? • How much am I allowed to contribute? • How do I make my contribution?

  16. Will I pay federal income taxes now on the amount I contribute?

  17. Will I pay federal income taxes on withdrawals? • *Note: Roth withdrawals • Are always tax free on the amount contributed • Are tax free on investment earnings at the later of age 59 ½ or the account’s 5th anniversary • Death or disability can also result in tax free withdrawals if account is 5 years old

  18. A comparison • *Note: Roth withdrawals • Are always tax free on the amount contributed • Are tax free on investment earnings at the later of age 59 ½ or the account’s 5th anniversary • Death or disability can also result in tax free withdrawals if account is 5 years old

  19. Pay income taxes now or later? The answer to that question depends on how you feel about this: Will your retirement income be in a higher tax bracket than your current bracket? • *Note: Roth withdrawals • Are always tax free on the amount contributed • Are tax free on investment earnings at the later of age 59 ½ or the account’s 5th anniversary • Death or disability can also result in tax free withdrawals if account is 5 years old

  20. Who chooses the investment product I can use?

  21. Can I keep contributing to my account even if I change jobs?

  22. *Note: Roth withdrawals • Are always tax free on the amount contributed • Are tax free on investment earnings at the later of age 59 ½ or the account’s 5th anniversary • Death or disability can also result in tax free withdrawals if account is 5 years old

  23. Is my ability to withdraw money limited?

  24. The Roth IRA has a very special benefit • If you are a first time home buyer AND • If your Roth IRA is over five years old Then an individual can withdraw up to $10,000 • tax and penalty free • includes both contributions and earnings • per individual, so a couple with two accounts could withdraw up to $20,000

  25. How much am I allowed to contribute? *NOTE: “catch up provisions” allow older savers to contribute additional amounts.

  26. How do I make my contribution?

  27. 1 Note: Roth withdrawals • Are always tax free on the amount contributed • Earnings can be withdrawn tax free at the later of age 59 ½ or the account’s 5th anniversary. In addition, at death or when disabled if account is five years old. • 2 Access to both earnings and contributions is limited until after 59 ½. Earlier 403(b) withdrawals may be permitted for disability or separation from service. • 3 Catch up provisions may apply and can allow older savers to contribute additional amounts.

  28. Putting all the pieces together!

  29. Review and Compare • 1 Note: Roth withdrawals • Are always tax free on the amount contributed • Earnings can be withdrawn tax free at the later of age 59 ½ or the account’s 5th anniversary. In addition, at death or when disabled if account is five years old. • 2 Access to both earnings and contributions is limited until after 59 ½. Earlier 403(b) withdrawals may be permitted for disability or separation from service. • 3 Catch up provisions may apply and can allow older savers to contribute additional amounts.

  30. How do I decide? • Roth IRA? • 403(b)? Which to choose? Your situation is the key, but there are some general guidelines

  31. Roth IRAs A great tool for younger savers • In lower tax brackets, save after taxes and pay no taxes when you retire • Can keep contributing even if change in employers • Contributions always available for withdrawal tax free and provide an emergency fund

  32. 403(b) Plans Can be an advantage • Save with before tax dollars • Advantage as you move to higher tax brackets • Higher contribution limits allow more dollars saved • Advantage to savers in their peak earnings years • Advantage to two income households

  33. What about a combination of both? • Use a Roth IRA to provide tax free source of retirement funds • Use a 403(b) plan to increase the amount you can contribute and increase your retirement assets • Depending on your circumstances, you might fund a Roth first and then a 403(b) OR fund a 403(b) first and then a Roth.

  34. START NOW! Whichever plan you choose, don’t delay. Start to pay yourself right now!

  35. ThankYou!

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