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ROTH IRAs

ROTH IRAs. PLEASE DO NOW …. In your notebooks, please answer the following questions: What are the advantages of a traditional IRA? Is it better to be taxed on IRA distributions or is it better to be taxed on your IRA contributions? Please explain. TODAY’s GOALS. What is a Roth IRA?

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ROTH IRAs

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  1. ROTH IRAs

  2. PLEASE DO NOW… • In your notebooks, please answer the following questions: • What are the advantages of a traditional IRA? • Is it better to be taxed on IRA distributions or is it better to be taxed on your IRA contributions? Please explain.

  3. TODAY’s GOALS • What is a Roth IRA? • Who is eligible to establish a Roth IRA? • How can we contribute to a Roth IRA? • Distributions from a Roth IRA.

  4. 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.

  5. DEFINITIONS to KNOW ROTH IRA

  6. WHAT IS A ROTH IRA? • A retirement account where contributions are NEVER tax-deductible (they are taxed!!!) and earnings grow on a tax-free basis. • An excellent supplement to an individual’s retirement income. • In general, assets in the Roth IRA are NOT taxed when they are withdrawn. ROTH IRA Video

  7. WHO IS ELIGIBLE TO ESTABLISH A ROTH IRA? • Any individual, regardless of age, who has taxable compensation for the year. • Any individual, regardless of age, who has self-employment income for the year. • To make a contribution, the individual must have a modified adjusted gross income (MAGI) that is less than a certain amount.

  8. HOW CAN WE CONTRIBUTE TO A ROTH IRA? • Make a contribution to your Roth IRA account. • Make a contribution to your spouse’s Roth IRA account. • Transfers. • Rollover contributions.

  9. DISTRIBUTIONS FROM A ROTH IRA • In general, distributions from a Roth IRA must NOT occur before age 59½. • In general, distributions that occur before 59½ will be charged a 10% early distribution penalty. • Qualified distributions from a Roth IRA are ALWAYS tax-free. • Non-qualified distributions from a Roth IRA may be taxed. • There are some exceptions to the 10% penalty rule. • A Roth IRA owner does NOT have to take required minimum distributions (RMDs) the year he or she reaches age 70½.

  10. WHAT IS THE DIFFERENCE BETWEEN A TRADITIONAL AND ROTH IRA??? • Traditional IRA: taxes are paid on the back end, or when you take distributions. Your original investment, plus all earnings are taxed! • Roth IRA: taxes are paid on the front end, or when you make contributions.Your original investment is taxed, your earnings are not taxed!

  11. WHAT IS THE DIFFERENCE BETWEEN A TRADITIONAL AND ROTH IRA??? • Video: Roth IRA vs. Traditional IRA

  12. LET’s PRACTICE… Jack, age 61, takes a $6,000 distribution from his Roth IRA. His income tax bracket is 35%. How much will he be taxed on the distribution? Solution: Taxes on Roth IRA QUALIFIED Distributions = $0.00

  13. A LOOK AHEAD… Understanding the P/E Ratio

  14. QUESTIONS???

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