lesson 13.5 ira/roth ira july 2011copyright © 2011 … remtech, inc … all rights reserved1...

Lesson 13.5IRA/Roth IRA

July 2011 Copyright © 2011 … REMTECH, inc … All Rights Reserved 1

Introduction

The IRA and Roth IRA are retirement accounts you must fund

The Roth IRA was created for workers who didn’t want to pay taxes on their withdrawals

The IRA was created for those not having a pension/401(k) at work

It is not uncommon for workers who have a pension plan or 401(k) at work to also have one or both of

these plans

Both the IRA and Roth IRA are popular with workers



Objectives

• Explain how an IRA and a Roth IRA works

• Discuss how an IRA and a Roth IRA compare to a 401(k)

• Review the advantages/disadvantages of having an IRA

• Review the advantages/disadvantages of having a Roth IRA

• Identify the contribution limits for an IRA and a Roth IRA

• Discuss when money can be withdrawn from an IRA and a Roth IRA

You should be able to do the following after completing this lesson!

• Explain the tax benefits of having an IRA or a Roth IRA

• Define the key terms introduced in this lesson



13.5.1 – The IRA and Roth IRA

• What a Defined Contribution Plan is

• What an IRA and Roth IRA are and how they work

• Where you can set up an IRA or Roth IRA

• Who funds these retirement plans

• How you select what investments to want to invest in

In this Section, you will learn



13.5.2 – Advantages of an IRA

• Who can establish an IRA

• What fully and partially tax-deferred means

• When money from an IRA is taxed

• When you can withdraw money from an IRA without penalty


• Tax-Deferred Income Example

You will run the following Interactive Example



13.5.3 – Disadvantages of an IRA

• Why your filing status and income are important

• What tax rate will apply to your withdrawals from an IRA

• Why contributions and withdrawals must be reported to the IRS

• When the 10% Tax Penalty for early withdrawals applies

• What additional restrictions apply to IRA contributions

• What a Required Minimum Distribution is


• How much you can contribute to an IRA each year



13.5.4 – Advantages of a Roth IRA


• Who can establish a Roth IRA

• When the growth of an Roth IRA is taxed

• When you can withdraw money from a Roth IRA

• What a qualified withdrawal is

• How Required Minimum Distributions apply to a Roth IRA

• Whether you have to report contributions and withdrawals to the IRS



13.5.5 – Disadvantages of a Roth IRA


• Why your contributions are never tax-deferred

• What limits how much you can contribute

• Why early withdrawal penalties only apply to the growth of a Roth IRA

• How long a Roth IRA must be open before you can withdraw money without penalty

• What is the max amount you can contribute to a Roth IRA each year



13.5.6 – Contribution Limits

• Why the maximum allowed contribution per year includes contributions to both plans

• When contributions to a Roth IRA begin to phase out


• What the max annual contribution to an IRA and Roth IRA are



13.5.7 – Tax-deferred Contributions

• Why contributions to an IRA can be fully, partially or not tax-deferred


• When tax-deferred contributions to an IRA begin to phase out

• Why contributions to a Roth IRA are never tax-deferred



13.5.8 – Withdrawing the Money


• At what age you can begin making qualified withdrawals

• How being retired affects when you can make withdrawals from an IRA or Roth IRA

• When withdrawals from an IRA or Roth IRA are subject to income taxes

• How Required Minimum Distributions affect an IRA and Roth IRA

• Retirement Plan Growth Exercise

You will run the following Interactive Exercise



Discussion Questions

What is the probability that an individual’s income tax rate will be lower in the future?

Why would someone select a Roth IRA knowing contributions cannot be used as a tax deduction?

lesson 13.5 ira/roth ira july 2011copyright © 2011 … remtech, inc … all rights reserved1...

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