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TRADITIONAL IRAs

TRADITIONAL IRAs. PLEASE DO NOW …. In your notebooks, please answer the following questions: If you buy a stock for $10 and then sell it for $15, what is your NET gain? Explain. How many years does it take for $10,000 to double in value if your yearly gain is 12%?. PLEASE DO NOW…ANSWER.

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TRADITIONAL IRAs

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  1. TRADITIONAL IRAs

  2. PLEASE DO NOW… • In your notebooks, please answer the following questions: • If you buy a stock for $10 and then sell it for $15, what is your NET gain? Explain. • How many years does it take for $10,000 to double in value if your yearly gain is 12%?

  3. PLEASE DO NOW…ANSWER • If you buy a stock for $10 and then sell it for $15, what is your NET gain? It’s not $5. What tax bracket are you in??? • How many years does it take for $10,000 to double in value if your yearly gain is 12%? • Rule of 72: 72 / Interest Rate = Number of Years to Double • 72 / 12% = 6 years

  4. TODAY’s GOALS • What is a Traditional IRA? • Who is eligible to establish a Traditional IRA? • How can we contribute to a Traditional IRA? • What is a rollover? • What are distributions?

  5. 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.

  6. DEFINITIONS to KNOW • Distribution • RMDs • IRA • Direct Rollover • Transfer

  7. WHAT IS A TRADITIONAL IRA? • A retirement account where contributions are tax-deductible and earnings grow on a tax-deferred basis. • An excellent supplement to an individual’s retirement income. • Assets in the traditional IRA are not taxed until they are withdrawn. The Benefits of Traditional IRAs Video

  8. WHO IS ELIGIBLE TO ESTABLISH A TRADITIONAL IRA? • Any individual, regardless of age, who has taxable compensation for the year and will not reach age 70 ½ by the end of the year. • Any individual, regardless of age, who has self-employment income for the year and will not reach age 70 ½ by the end of the year.

  9. HOW CAN WE CONTRIBUTE TO A TRADITIONAL IRA? • Make a contribution to your IRA account. • Make a contribution to your spouse’s IRA account. • Transfers between IRA accounts. • Rollover contributions. Why would I want to do that?!

  10. WHAT IS A ROLLOVER? • A rollover is a tax-free movement of assets between retirement plans. • A direct rollover is a rollover from a qualified plan, such as a 401(k).

  11. WHAT ARE DISTRIBUTIONS? A removal of assets from a retirement account that is paid to the retirement account owner. • In general, distributions from a traditional IRA must occur after age 59½. • In general, distributions that occur before 59½ will be charged a 10% early distribution penalty. • There are some exceptions to the 10% penalty rule. • A traditional IRA owner must begin required minimum distributions (RMDs) the year he or she reaches age 70½.

  12. LET’s PRACTICE… Jack, age 61, takes a $6,000 distribution from his traditional IRA. His income tax bracket is 35%. How much will he be taxed on the distribution? Solution: Taxes on Traditional IRA Distributions= Amount of Distribution * Income tax rate Taxes on Traditional IRA Distributions= $6,000 * 35% Taxes on Traditional IRA Distributions= $2,100

  13. LET’s PRACTICE MORE… Jason, age 56, takes a $6,000 distribution from his traditional IRA. His income tax bracket is 35%. How much will he be taxed on the distribution? Solution: Taxes on Traditional IRA Distributions= Amount of Distribution * Income tax rate Taxes on Traditional IRA Distributions= $6,000 * (35%+10% penalty) Taxes on Traditional IRA Distributions= $6,000 * 45% Taxes on Traditional IRA Distributions= $2,700

  14. Video What is an IRA?

  15. A LOOK AHEAD… • Roth IRAs • Case Study #5

  16. QUESTIONS???

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