The Roth IRA
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The Roth IRA. What is it and how does it work Roth IRA vs. Traditional IRA Contributing to a Roth IRA Conversion from Traditional IRA Types of distributions Is the Roth IRA right for you?.

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The Roth IRA

What is it and how does it work

Roth IRA vs. Traditional IRA

Contributing to a Roth IRA

Conversion from Traditional IRA

Types of distributions

Is the Roth IRA right for you?


  • This material is intended to provide general information and is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.


The roth ira
The Roth IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

  • The Roth IRA is a retirement savings vehicle similar to the Traditional IRA. With a Traditional IRA you may get tax benefits when you put the money in. With a Roth IRA you may be able to take money out completely income-tax-free.

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The roth ira1
The Roth IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

  • What the Roth IRA is and how it works

    • In the simplest terms, with a Roth IRA you put away currently-taxed income to be withdrawn income-tax-free during retirement.1

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  • 1 Assumes funds meet Roth IRA minimum holding requirements, if applicable. Retirement funds withdrawn from a Roth IRA before age 591/2 may be subject to income and/or penalty taxes, depending on the purpose of the withdrawal.


The roth ira2
The Roth IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

  • Differences between the Roth IRA and the Traditional IRA

Traditional IRA

Roth IRA

  • Tax-deductible contribution

  • Maximum contribution2

  • Income-tax-deferred growth

  • Income-tax-free withdrawals

  • Minimum holding period

  • No

  • $3,000

  • Yes

  • Yes

  • 5-year holding period may apply to withdrawals

  • Maybe1

  • $3,000

  • Yes

  • No3

  • None

  • 1 Deductibility of Traditional IRA contributions are based on adjusted gross income and participation in an employer-sponsored retirement plan.

  • 2 For 2003-2004 contributions cannot exceed the lesser of $3,000 or your taxable compensation. Spousal contributions are based on total household income, allowing couples to make a maximum contribution of up to $6,000. If you are 50 years of age or older, the limit is $3,500.

  • 3 Withdrawals of non-deductible contribution amounts are tax-free.


The roth ira3
The Roth IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

Traditional IRA

Roth IRA

Roth IRA

701/2

701/2

Varies depending on the type and purpose of the withdrawals

Withdrawals are taxed at present rate1

  • None

  • No required distributions for the original owner

  • Varies depending on the type and purpose of the withdrawals

  • Withdrawals are income-tax-free if the account is held for more than five years

  • Maximum contribution age

  • Required minimum distributions begin

  • Tax penalty for earlywithdrawals

  • Withdrawals for retirement

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  • 1 Withdrawals of non-deductible contribution amounts are income-tax-free.


The roth ira4
The Roth IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

Traditional IRA

Roth IRA

  • Withdrawals for first-time homebuyers ($10,000 lifetime maximum) before age 591/2

  • Withdrawals for higher education before age 591/2

  • Yes – income tax owed on amounts exceeding contributions if withdrawn within the first five years

  • Yes – income taxes owed on amounts exceeding contributions if withdrawn within the first five years

  • Yes – withdrawals taxed at present rate

  • Yes – withdrawals taxed at present rate

7

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The roth ira5
The Roth IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

  • Roth IRA vs. Traditional IRA

    • Compare the difference between making a $3,000 contribution to a Roth IRA for 20 years and making a $3,000 contribution to a nondeductible Traditional IRA for 20 years.

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The roth ira6
The Roth IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

  • Roth IRA vs. Traditional IRA1

Traditional IRA

Roth IRA

  • Amount contributed

  • Value in 20 years $148,269 $148,269

  • Taxes owed on lump-sum withdrawal

  • Total amount available to withdraw

$60,000

$60,000

0

$23,833

$148,269

$124,436

1 This hypothetical example is not indicative of any particular investment and does not consider the tax deductibility of the Traditional IRA, which may be important for some investors. The example assumes all contributions are after-tax dollars. Investment return is assumed to be 8 percent, and the assumed federal income tax bracket is 27 percent.

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The roth ira7
The Roth IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

  • Roth IRA vs. Traditional IRA

    • If the funds are withdrawn over a period of 20 years, how much would you be able to spend at the end of each year?1

Roth IRA:

Traditional IRA:

$15,102

$11,024

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1 Withdrawals may be subject to income and/or penalty taxes. This hypothetical example is not indicative of any particular investment. Investment return is assumed to be 8 percent, and the assumed federal income-tax bracket is 27 percent both before and during retirement.


Putting money into the roth ira
Putting money into the Roth IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

  • You have two options for putting money into a Roth IRA:

    • Contribute new money to a Roth IRA each year.

    • Convert an existing Traditional IRA to a Roth IRA.

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Putting money into the roth ira1
Putting money into the Roth IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

  • Contributing new money to a Roth IRA

    • You can open a Roth IRA as long as you have earned income and your adjusted gross income is below a specified limit.

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Putting money into the roth ira2
Putting money into the Roth IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

Married filing a joint return

Married filing separately

Single

Income under $95,000

Income between $95,000-$110,000

Income over $110,000

Income under $150,000

Income between $150,000-$160,000

Income over $160,000

Full contribution

Contribution of less than $3,000

No contribution allowed

Income of zero (0)

Income between 0-$10,000

Income over $10,000

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Converting a traditional ira to a roth ira
Converting a Traditional IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.to a Roth IRA

  • If you convert a Traditional IRA to a Roth IRA, you trade current income taxes for the potential of income-tax-free withdrawals in retirement.

  • You can’t convert a retirement plan distribution directly into a Roth IRA.

13


Converting a traditional ira to a roth ira1
Converting a Traditional IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.to a Roth IRA

  • You must meet the following qualifications in order to convert funds:

    • Your modified adjusted gross income (AGI) must be under $100,000, whether you are single or married filing a joint return. If you are married and file separate returns, you do not qualify for a conversion. The converted amount is not included in determining your AGI for this purpose.


Converting a traditional ira to a roth ira2
Converting a Traditional IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.to a Roth IRA

  • You must meet the following qualifications in order to convert funds:

    • You must pay the income tax on the conversion in the year of the conversion.


Converting a traditional ira to a roth ira3
Converting a Traditional IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.to a Roth IRA

  • Paying taxes on a conversion

Taxes paid out of IRA Funds

Taxes paid out of other funds

IRA balance $100,000

Tax owed1 $27,000

Total remaining $73,000

10 percent early withdrawal penalty

Total converted

IRA balance $100,000

Tax paid out of other funds

Total remaining $100,000

No early withdrawal penalty

Total converted

$2,700

$100,000

$70,300

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  • 1 Assumes a 27 percent federal income tax bracket.


Converting a traditional ira to a roth ira4
Converting a Traditional IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.to a Roth IRA

  • Partial conversions

    • Consider a partial conversion if:

      • A full conversion would push you into a higher income tax bracket.

      • You don’t have enough cash available to pay the tax on a full conversion.

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Converting a traditional ira to a roth ira5
Converting a Traditional IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.to a Roth IRA

  • Five-year holding period

    • Withdrawals of earnings on the account and withdrawal of any funds converted from a Traditional IRA may be subject to penalty and income taxes; if a withdrawal is made within the first five years of the first contribution or conversion to the Roth IRA.

17


Converting a traditional ira to a roth ira6
Converting a Traditional IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.to a Roth IRA

  • Five-year holding period

    • If you have multiple Roth IRAs, the clock begins with the first Roth IRA you open. When the first Roth IRA meets the five-year holding requirement, all your Roth IRA accounts meet the requirement.

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Converting a traditional ira to a roth ira7
Converting a Traditional IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.to a Roth IRA

  • Required minimum distributions

    • You are not required to take minimum distributions from a Roth IRA.

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Types of distributions
Types of distributions is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

  • The Roth IRA is a retirement savings account, but you might find that you need the money in your account for other purposes. Just remember that if you withdraw funds from your Roth IRA for purposes other than retirement, you will have less savings for retirement.

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Types of distributions1
Types of distributions is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

  • Three types of distributions can be made from your Roth IRA:

    • Qualified distributions.

    • Taxable distributions with no penalty.

    • Taxable distributions with a penalty.

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Types of distributions2
Types of distributions is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

  • Qualified distributions

    • After satisfying the five-year holding period, the following distributions can be made with no federal income tax or penalty owed.

      • Payments to you after age 591/2.

      • Payments to a beneficiary after your death.

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Types of distributions3
Types of distributions is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

  • Qualified distributions

    • Distributions due to your disability.

    • First-time home purchase, up to the lifetime limit of $10,000 for you, your spouse, your children, your grandchildren, and your parents or other ancestors.

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Types of distributions4
Types of distributions is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

  • Distributions with no penalty

    • After satisfying the five-year holding period, the following withdrawals can be made with no penalty owed, prior to age 591/2. Federal income tax is owed on any amount that exceeds the amount of annual contributions.

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Types of distributions5
Types of distributions is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

  • Distributions with no penalty

    • Contributions, excluding earnings, can be withdrawn tax-free at any time.

    • Higher education expenses for you, your spouse, your children, or your grandchildren.

    • Certain medical expenses.

    • A series of substantially equal payments over your life (or life expectancy).

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Types of distributions6
Types of distributions is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

  • Distributions with penalty

    • Any other distributions can be made at any time and are subject to federal income tax and penalties on the amounts exceeding the amount of contributions made directly to the Roth IRA.

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Types of distributions7
Types of distributions is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

  • Taking out funds from a Roth IRA

    • If you have multiple Roth IRAs, no matter which account you take money out of, the money will be distributed in a set order:

      1. Annual contributions (non-conversion).

      2. Previously taxed portion of your first conversion Roth IRA.

      3. Not previously taxed portion of your first conversion Roth IRA.

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Types of distributions8
Types of distributions is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

4. The rest of your conversion IRAs, in order, with the previously taxed portion distributed first.

5. Any earnings on your accounts.


Roth ira case study 2 bob and brenda

Traditional IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.$100,000

$50,000deductible

$50,000nondeductible

Remaining Traditional IRA balance $60,000

Roth IRA $40,000

$20,000 nondeductible

$30,000 nondeductible

$20,000deductible

$30,000deductible

Roth IRA case study 2: Bob and Brenda


The roth ira8
The Roth IRA is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

  • These IRA choices raise a few questions:

    • Does it make sense for me to continue contributing to a Traditional IRA?

    • Should I put my money into a Roth IRA instead?

    • Should I leave my money in a Traditional IRA?

4


Questions
Questions? is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

  • Enrollment Process: 10 Minutes

  • Payroll Deducted: Up to $3000max/yr

  • 50 yrs or Older: Additional $500/yr


Thank you for attending is not intended to provide legal or tax advice. Because individual situations vary, each situation should be examined carefully to determine appropriate planning strategies. It is recommended that decisions be made after consultation with competent financial, tax and legal professionals.

cn 306843262004


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