1. Describe the retirement plan. The content should have depth and demonstrates understanding.
A Roth IRA is a retirement plan for individuals that is available for anyone of any age as long as that person has an income. Roth IRA is a very tax efficient plan. An individual is able to put money into an account each year and when the money is taken out it is taxed. The earnings and the withdrawals will become tax-free after the individual turns 59 ½ years of age. The money in a Roth IRA can be in in there
Traditional IRA is where an individual puts money into an account and the government taxes that money before its is put into the account and it is taxed after it is withdrawn.
401k is a retirement plan established by an employee and employer. The employee will put a certain amount of money into the account and the employer has to put the same amount into the account. 401ks have rule to how much money can be put into the account. The maximum amount that the employer can put into the account is the amount of the employee’s salary or $46,000. There are also rules to withdrawing the money. If the employee wants to withdraw money before retirement the employee can’t withdraw the money that the employer out in the account. If the company fails the money can be rolled over to a traditional IRA.
Social security is a retirement plan provided by the government. It provides assistance to people that are retired, widows, or disabled. Workers contribute to Social Security by paying a FICA tax. A person gets benefits from Social Security because the people earn credits depending on the amount of money that person puts into Social Security.
2. Is this retirement plan tax deferred?
Roth IRA is tax deferred. Money is taken out of the paycheck so it could be invested and it won’t be taxed taxed until the money is taken out after retirement.
Traditional IRA is tax deferred. Money from the person’s paycheck will taken out and put into a retirement plan account. When that person retires the money will be taxed when the money is taken out. The taxes will be less by retirement because that person is no longer working.
401k is tax deferred. Money is taken out of the paycheck and it will be taxed when it is given back.
Social Security is not tax deferred.
3. When are you allowed to take money out of this retirement plan?
Money can be taken out out of a Roth IRA any time but there is a penalty if money is taken out after the age of 59 ½ .
Traditional IRA can have money taken out any time. The problem is that if the money is taken out before the age of 59 ½ income taxes will have to be paid and there will be an additional 10% penalty.
In a 401k money can be taken out but only the money that the employee puts into the plan can be taken out before retirement.
Social Security allows money to be taken out at retirement age and when there enough credits.
4. Is there a maximum contribution per year? What is the maximum contribution if any?
A Roth IRA has a maximum contribution. The amount depends on how the individual files his or her taxes and how much income is earned.
A traditional IRA can only get contributions of $5,500 and $6,500 after age 50.
As of 2015 a 401k can receive contributions of $18,000 if the individual is younger than 50 and $19000 if the individual is older than 50.
As of 2015 Social Security can tax $118,500 in earnings.
5. Do you get paid from this retirement plan for life?
A Roth IRA is not for life
Traditional IRA is not for life.
401k in not for life because the amount of money that the employee and the employer is going to run out at some point.
Social Security is not for life because it can depends on how much credit is saved up over time.
6. Can you leave the money in this account after retirement? If not, when do you have to close the account?
Roth IRAs don’t have a mandatory withdrawal time.
Traditional IRAs require money to be taken out by age 70 ½.
401k requires withdrawals by age 70 ½.
Social Security benefits will be available in after retirement but it is best not to wait after age 70 because benefit payments go up each year.
7. Is there a monthly minimum amount you have to withdrawal during retirement and how much is it?
Roth IRAs has no mandatory withdrawals so there is no minimum withdraw.
Traditional IRAs have minimum distribution period of 27.4 at age 70.
401k has a minimum distribution period of 27.4 by age 70.
Social Security does not require money to be taken out but the best thing to do is not wait because the benefit payment goes up.
8. What are the advantages and disadvantages of this retirement plan?
Roth IRA is tax deferred which helps make it tax efficient. The withdrawals are not taxed and he money in the account can stay in the account after retirement. Any inherited funds can be be put in the account with no penalties. The problem with Roth IRAs is that it is not deductible. The contributions don’t reduce the AGI and contributions can’t be made if income is over the limit.
Traditional IRA is tax efficient and it is tax deductible. The contributions help lower the AGI. Money can be taken out of the account but the money will be taxed if the money is taken out before retirement . There is a required minimum amount that needs to be withdrawn by age 70 ½. There are limits to contributions.
401k is tax deferred. There is a choice in how much money you can put in and the employer has to match the amount. There are payroll deductions and the money in the account is safe because the money will be transferred to an IRA account if the company fails. Loans can be taken out but the loans must be payed back. The problem with 401k is that the employer can control how much money the employee can contribute.
Social Security has been around for a very long time and it has helped a lot of people. It offers good security and everyone benefits from social security since everyone pays payroll taxes. The thing is that people can make more money from alternative private plans.
Pick two retirement plans for yourself and answer questions 1-9 for both retirement plan.
1. Which two retirement plans did you pick? One of which must be from your chosen career.
I chose 401k and Roth IRA. Both of these plans are available from my chosen career, lawyer.
2. Look at your current budget. How much money do you have available to make investments? How much will you invest each month?
In my first I would have $1,150.25 after taxes, expenses, and costs of entertainment. I will be able to invest all of that money each month for each plan.
3. Calculate the amount of money you will have at retirement using an equation for both of your retirement accounts. Assume you are retiring at age 60 and have been making monthly contributions starting at age 35.
$1,150.25(1+0.00167)300-1/0.00167=$447,482.59
4. How much money will you have saved by the time you retire based on your online budget?
The money saved by 401k: $180, 205
The money saved by Roth IRA: $84,072
5. Payment is different for each retirement plan. How are the payments handled at retirement for your two investments? For example, do you have to pay a fee or are you only allowed to withdraw a certain amount each year?
401k has money taken out of an employee’s paycheck and the employer must match the amount. The money is saved up over time and it is taxed when the person retires and the money is taken out. Loans can be taken out but must be repaid. Money must be taken out by age 70 ½.
A Roth IRA has money taken out of a paycheck too. The money gets invested and the it will be taxed when the money is taken out of the account. There is no required minimum withdrawals. The money can be taken before retirement but there is a penalty if the money is taken out before age 60.
6. Determine your monthly distribution from both accounts at retirement. Assume these investment choices were made at age 35.
The monthly distribution for the 401k is $2,134.43. The monthly distribution for Roth IRA is $2671.24.
7. Create a monthly budget for your retirement. Lets assume you are retiring at 60 years of age.
Spending
|
Income
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401k $2, 134.43
|
|
Roth IRA $2671.24
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Gas $40.00
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Electricity $200.00
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Food $500.00
|
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Credit Card $50.00
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Home Mortgage $1783
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Car Maintenance $$100.00
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Cable TV $400
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Water $70
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|
|
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Total Spending $3143
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Total Income $4,805.67
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Total $1,662.67
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8. Will you be able to live comfortably based on your lifestyle at retirement? Provide a clear explanation.
I will be able to live comfortably. The income from my retirement plans will be able to cover my expenses.
9. Provide a bibliography for all your research.
What is Roth IRA?. Roth IRA. n.d.
10 things you must know about Traditional IRAs. Kiplinger.
What is Traditional IRA?. Schwab.
What is 401k?. Guides. WSJ.
What is Social Security?. Nasi.
Retirement Topics - IRA contributions. IRS.
Contribution Limits for retirement accounts. Fidelity.
Benefits Planner: Maximum Taxable Earnings (1937-2015) Social Security.
Bell, Kay.IRA required distributions table. Bank Rate.
Francis, Michael J. 401k Adviser. JS Online
Advantages and disadvantages of Roth IRA. Biz Actions.
Traditional IRA. Dividend.
Advantages and Disadvantages of 401k plans. Financial Info Hub.
Reader, Casey. Advantages & Disadvantages of Social Security. ehow.
401k savings calculator. Bank rate.
