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9-1 RETIREMENT INCOME FROM SAVINGS

9-1 RETIREMENT INCOME FROM SAVINGS. OBJECTIVES. Calculate future values of retirement investments that are both single deposit and periodic. Compare the tax savings by making contributions to pre-tax retirement savings accounts.

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9-1 RETIREMENT INCOME FROM SAVINGS

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  1. 9-1RETIREMENT INCOME FROM SAVINGS OBJECTIVES Calculatefuture values of retirement investments that are both single deposit and periodic. Comparethe tax savings by making contributions to pre-tax retirement savings accounts. Calculate an employer’s matching contribution to a retirement account.

  2. retirement semi-retired pre-tax dollars after-tax investments individual retirement account (IRA) traditional IRA tax-deferred Roth IRA tax-exempt 401k Keogh plan 403b Key Terms

  3. Example 1 Blythe is 40 years old. She is planning on retiring in 25 years. She has opened an IRA with an APR of 3.8% compounded monthly. If she makes monthly deposits of $500 to the account, how much will she have in the account when she is ready to retire?

  4. Example 2 Suppose that Blythe’s annual contribution was pre-tax. How much did she save in taxes in one year if her taxable income for that year was $72,500?

  5. EXAMPLE 3 Chelsea is 45 years old. She plans to open a retirement account. She wants to have $300,000 in the account when she retires at age 62. How much must she deposit each month into an account with an APR of 2.25% to reach her goal?

  6. EXAMPLE 4 Zander is a 50-year-old married man who files taxes separately from his wife. He has been making monthly contributions into his traditional IRA for many years. Last year, he entered into a new business partnership and decided to withdraw $50,000 from his IRA to make the initial investment in the partnership. Zander’s taxable income for the year, excluding the $50,000 from his IRA, was $97,000. How much extra did he pay in both penalty and taxes because of this withdrawal?

  7. EXAMPLE 5 Leo makes $75,000 per year. His company offers a 401k retirement plan in which they match 50% of his contributions to the 401k up to 6% of his salary. The company allows employees to make contributions to the 401k to a maximum of 15% of their salary. The maximum allowable contribution to any 401k is $16,500. How much should Leo contribute per month in order to maximize his employer’s matching contribution?

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