Planning for the Future

1. Planning for the Future How you spend and invest your money can have an impact on your lifestyle at a later time. What might you want to start saving for in the near future?

2. Lesson Objective Compute the required minimum distribution (RMD) and the penalty for early withdrawal from an individual retirement account (IRA). Content Vocabulary individual retirement account (IRA) A tax-deferred retirement account for an individual. Roth IRA Individual retirement accounts, which mature with interest being tax free. required minimum distribution (RMD) The amount you are required to withdraw from a traditional IRA once you reach retirement age, based on life expectancy. • individual retirementaccount (IRA) • Roth IRA • required minimumdistribution (RMD)

4. Example 1: Bob Bains had saved $2000 per year in his IRA for 35 years. At age 70, the fair market value of his IRA was $256,202,89. Using the uniform lifetime table, what is his required minimum distribution? What penalty would he pay if he did not take the distribution? If Bob had withdrawn $25000 at age 50 for a vacation, what would have been his penalty? What penalty would he have paid if he used the $25000 for his children’s college expences?

5. Step 1: Find the required minimum distributionFair Market ValueLife Expectancy Factor

6. Step 2: Find the penalty for failure to take a distribution50% X Required Minimum Distribution

7. Step 3: Find the penalty for early withdrawal.10% X Amount of Distribution NO penalty for making an early withdrawal for children’s college.