Transcript Retirement Planning

Retirement
Planning
How to Become a Millionaire!
Investing for Retirement
 We are going to discuss different
investing tools that individuals can use to
help prepare for their retirement.
 These include: 401K’s (Traditional and
Roth), 403 B’s (Traditional and Roth) and
Individual Retirement Accounts
(Traditional and Roth).
401K (Traditional)
 This is an employer sponsored retirement plan
that is funded through payroll deduction.
 Traditional 401K’s are funded with pre-tax
dollars. This means that the amount that you
contribute to your 401K reduces your taxable
income for that year.
 Many employers match a percentage of their
employees contributions to their 401K’s. This is
one of the most significant employee benefits
that employers offer their employees.
 Individuals pay tax on their 401K when they
begin making withdrawals. It is treated as current
income for tax purposes.
Continued
 Individuals may begin making withdrawals (without
penalty) when they reach 59 ½ years of age.
Individuals must start making withdrawals when they
reach 70 ½ years of age.
 If money is withdrawn from the account before the
individual reaches 59 ½ a 10% tax penalty must be
paid.
 An employee is always fully entitled to the portion of
their 401K that they fund. An employee becomes
“vested” or entitled to the employer’s matching
contribution with a designated number of years of
service.
 An employee is currently allowed to contribute $16,
500 into their 401K.
401K (Roth)
 This is an employer sponsored retirement plan that is
funded through payroll deduction.
 Roth 401K’s are funded with after-tax dollars. This
means that the amount that you contribute to your
401K does not reduce your taxable income.
 However, both the amount that is invested in the Roth
401K and any amount that the account earns is
completely tax-free when the money is withdrawn at
retirement.
 The same rules apply to Roth 401K’s, as Traditional
401K’s, concerning contribution limits, employer
matches, early withdrawals, and vesting.
403B (Traditional and
Roth)
 These are employer sponsored
retirement plans that operate similarly to
401K’s.
 403B’s are for individuals that work for
non-profit organizations or in the public
sector.
Individual Retirement
Account (Traditional)
 This is a retirement account that allows
individuals to set aside money each year
on a pre-tax basis.
 If certain income requirements are met,
the amount (or a portion) of your
contribution can reduce your taxable
income for the year that the contribution
is made.
Continued
 Taxes are paid on the contributions and
earnings when the money is withdrawn
for retirement.
 The same rules for withdrawals apply to
traditional IRA’s as with traditional
401K’s.
 The current amount that an individual
may contribute to an IRA is $5000 per
year.
Individual Retirement
Account (Roth)
 This is a retirement account that allows
individuals to put money aside for
retirement on an after-tax basis.
 The amount that is invested in a Roth
IRA, and any amount that the account
earns, is completely tax-free when the
money is withdrawn at retirement.
Continued
 Unlike a traditional IRA, You can withdraw your
contributions without penalty at any time.
 You can begin making penalty-free withdrawals
of earnings if you are at age 59½ and if your
account has been open for at least 5 years.
 Unlike a traditional IRA, there is no mandatory
age that you must begin making withdrawals
from your account.
 The current amount that an individual may
contribute to a Roth IRA is $5000 per year.
Words of Wisdom!
 Take full advantage of 401K’s/403B’s at work!
Make sure that at the very minimum that you
are contributing a percentage of your income
equal to what your employer will match.
 Pay attention to the rules for “vesting” at your
place of employment. It may be worth staying
at the place of employment for additional time
to enjoy the benefits of the employer’s
contribution to your retirement account.
Continued
 The Roth retirement accounts are quite possibly the
greatest financial gift that government legislation has
ever created (Thank you Senator William Roth!).
 Remember when we talked about compounding
interest and the time value of money. Roth accounts
allow you to enjoy this without ever paying a penny in
tax on the earnings!
 If you start investing in these accounts early enough,
you can not only retire as a millionaire (or multimillionaire) you can do so without paying taxes on your
fortune!
 The key is to start early and continue to contribute on a
regular basis into your retirement accounts!
Compound Growth with a
Roth IRA
 We are going to take a look at a Roth
IRA retirement calculator and a graph
that will demonstrate the potential for taxfree growth.
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