Investing your money in IRAs. ROTH IRA! What is a Roth IRA, and why should I start one? An after tax investment All withdrawals are tax free as long.

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Presentation transcript:

Investing your money in IRAs

ROTH IRA!

What is a Roth IRA, and why should I start one? An after tax investment All withdrawals are tax free as long as certain requirements are made

Why did Uncle Sam give me this “free” gift? Not enough Americans are saving money Social Security is not going to be enough to support you in retirement (if it still exists) Not enough employers provide retirement accounts

Traditional IRAs Tax on withdrawals Tax credit for contributions Restrictions on how long you can contribute and how much you can contribute

Who Can Establish a Roth IRA? Any individual with taxable income that is less than $114,000 Married couples who earn less than $166,000

Here are the MAGI limits for 2008:

How much can I contribute?

What are the advantages of a Roth IRA? Contributions can be made after age 70 ½ (unlike the age limitation of a traditional IRA). Contribution eligibility is not restricted by active participation in an employer’s retirement plan.

Advantages continued You may withdraw contributions (amount you put in) at any time without taxes or penalties (flexibility and liquidity). Withdrawals of earnings upon death or disability, for first time home-buying or after age 59 ½ are tax-free provided a 5 year wait has occurred.

What are the disadvantages of a Roth IRA? Premature withdrawals in excess of contributions are fully taxable and are also subject to an early withdrawal penalty. Contributions are limited each year ($5000/year maximum 50 for 2008).

Disadvantages continued There is a phase-out rule for high income persons. “Rich” people can’t contribute. There is no immediate tax savings (you must live into retirement age to personally take full advantage of it.)

What is expected rate of return? Approximately 11.4% Most accounts at a bank average between less than 1% and 6%

How do you actually start a Roth IRA? Put away money for emergencies and pay off debts Find a financial institution that fits your needs Information can be easily found on the internet

Questions to ask Is there a minimum initial investment? Minimum Contributions? What sorts of fees are assessed to the account? Does the company offer automatic contributions?

More questions Is it possible to download statements automatically into Quicken? What investment options are available? Can you invest in stocks? Mutual funds? Real estate? How reputable is the provider?

Some banks and credit unions offer IRA’s. But they’re limited to certificates of deposit (CD’s).

If you’re willing to make some decisions on your own, you can open a self-directed IRA through a mutual fund company or through an online discount brokerage.

How do you open an account Here’s a secret: opening a Roth IRA is easy. Have you ever filled out a job application? Have you ever applied for a credit card? Have you ever opened a bank account? That’s exactly what the process is like to start a Roth IRA.