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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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Presentation Transcript
slide2

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%?
slide3

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
slide4

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?
investment management standard s
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.

slide6

DEFINITIONS to KNOW

  • Distribution
  • RMDs
  • IRA
  • Direct Rollover
  • Transfer
slide7

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  • Assets in the traditional IRA are not taxed until they are withdrawn.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

slide8

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.
slide9

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?!

slide10

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).
slide11

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.
slide12

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

slide13

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

slide14

Video

What is an IRA?

slide15

A LOOK AHEAD…

  • Roth IRAs
  • Case Study #5