1. 1 Retirement Accounts, Regular Accounts, and Annuities Why? ’Cause ya’ gotta’ put yer money somewhere! M ISCELLANEOUS T OPICS

2. 2 Regular Taxable Accounts versus Retirement Accounts Taxable Account Retirement Account Stocks Bonds Mutual Funds “Cash” Stocks Bonds Mutual Funds “Cash” Although there are many subtle and not-so-subtle differences, the major differences are how they are taxed by the IRS, how much money you can contribute, and what you can have in the account. IRA, 401(k), 403(b), Roth IRA, etc. Regular account No limit on contributions Strict limits on contributions OptionsFutures Strict limits on investment types No limits on investment types Margining Shorting Pay taxes every year Tax-deferred (Roth IRA – tax-free) Real Estate

3. 3 Types of Retirement Accounts Pre-tax Contributions  401(k), 403(b) for private & public employees  Traditional IRA for everyone  SEP-IRA, SIMPLE IRA, Keogh for self-employed  Tax Break Now  Deduct contributions from income tax  Pay Taxes in Retirement Post-tax Contributions  Roth IRA for (almost) everyone (really for everyone!)  “Roth 401(k),” “Roth 403(b)”  Tax Break Later  Tax-Free in Retirement!

4. 4 Individual Retirement Arrangement The most popular personal retirement plan Now referred to as the “Traditional IRA”  Anyone with earned income can contribute to a Traditional IRA  Contributions are normally tax-deductible (“pre-tax”)  Unless you have a retirement plan at your employment and make over a certain amount  Contribution limits are increasing  Investment grows tax-deferred  You pay taxes on the money as you withdraw it once you are retired  Normally, after 59½ years of age  Mandatory withdraws begin at age 70½ “What? I thought it stood for Individual Retirement Account!?”

5. 5 And the IRA’s Many Cousins… 401(k) – corporations and other businesses 403(b), 457, 401(a) – public organizations SEP IRA – self-employed, small business SIMPLE IRA – self-employed, small business Solo 401(k) – self-employed SAR SEP – self-employed, small business Keogh – self-employed, small business Roth IRA – “post-tax” contributions  Now “Roth 401(k)’s” – “Roth 403(b)’s” They all work very much like the Traditional IRA except for the Roth IRA, “Roth 401(k),” and “Roth 403(b).”

6. 6 A Pre-tax Contribution Lowers Your Taxes Now Example: 401(k), 403(b), Traditional IRA You contribute via your paycheck:$100 Your Federal tax withholding is lowered by:$25 Your California tax withholding is lowered by:$8 Total government subsidy:$33 Your take home pay is only reduced by:$67 But the whole $100 still goes into your account

7. 7 “So What is the Catch?” You pay income tax on any amounts withdrawn in retirement  But people in retirement are usually in a lower tax bracket  If not, Congratulations! If you withdraw the funds before retirement…  You pay the income tax, and  You pay a 10% penalty  Exceptions for first home purchase ($10,000), higher education, medical disability and financial hardship (hard to get accepted by IRS)

8. 8 A Post-tax Contribution Gives No Tax Break Now Example: Roth IRA, “Roth 401(k)” You contribute to a Roth IRA:$100 Your Federal tax withholding is lowered by:$0 Your California tax withholding is lowered by:$0 Total government subsidy:$0 Your disposable income is reduced by:$100 So Why Contribute to a Roth IRA?

9. 9 “Because a Roth IRA is So Cool!” Tax-Free in Retirement is a Golden Opportunity  No other investment choice comes close  Eventually, they will probably be gotten rid of Plus, you can withdraw the contributions at any time with no penalty  You have already paid tax on the contributions This makes the Roth IRA also an excellent intermediate-term investment account  Purchase of a house or other high-ticket item  Great for college expenses  Currently not used in Financial Aid calculations

10. 10 Limitations on Roth IRAs Contributions  Only single taxpayers with an AGI of $114,000 or less and married couples with an AGI of $181,000 or less in 2014 can fully contribute to a Roth IRA  If you don’t qualify, Congratulations!  But you can contribute to a Roth IRA anyway  If you find that you have made over the limit, you can “recharacterize” the contributions into a Traditional IRA (which does not have the same limitations) before you file your taxes  And then you convert the Traditional IRA to a Roth  I know. I know. Who voted for these bozos?  Oh, yeah. We did… But a Roth IRA is Not for Everyone

11. 11 IRA / Roth IRA Contribution Limits YearUnder 50Age 50 and Over 2014 5,500 6,500 Contributions are limited to the lesser of your gross salary or the maximum yearly contribution. If you make at least $5,500 in any year, you have until April 15 th of the next year to put the maximum into a IRA or Roth IRA. Your spouse is also eligible for contributions even if he/she does not work.

12. 12 401(k), 403(b) Contribution Limits YearUnder 50Age 50 and Over 201417,50023,000 201518,00024,000 Contributions are limited to the lesser of your gross salary or the maximum yearly contribution. (Same rules as Traditional IRA / Roth IRA.) In other words, if you make $17,500 in year 2014, you could put your entire income into a 401(k) or 403(b) or 457. These amounts are now indexed to inflation and go up over time. There is a loophole in the law that allows those in the public sector to “double contribute” $17,500 into a 403(b) and $17,500 into a 457 – or $23,000 and $23,000 if you are 50 or over!

13. 13 Tax Credit for Low Income Earners Up to 50% of contributions Maximum of $2,000 Based on Adjusted Gross Income  $30,000 or less – single filers  $60,000 or less – married filing jointly  $45,000 or less – head of household A tax credit is a dollar for dollar reduction of income taxes If you do your own taxes, do not forget this. If you have someone do them, make sure to remind them you put money away in a retirement account. TurboTax handles these well.

14. 14 “Roth 401(k)” / “Roth 403(b)” If your employer offers the option, you are able to place after-tax dollars into your 401(k) or 403(b) accounts Just like a Roth IRA Employer matches will continue to be pre-tax contributions However, contributions are not able to be withdrawn without penalty or taxes until retirement (unlike a Roth IRA) This is a great option for those who do not need the tax break now. However, unless your employer offers matching contributions, I prefer the Roth IRA.

15. 15 What is an Annuity? An annuity is a life insurance product designed to provide a guaranteed income  Annuity options include income for a set number of years, for as long as you live, or for as long as you and your spouse (or other dependent) lives if he or she outlives you  The amount you get is based on which of the above options you pick, how much you have contributed, and how well your annuity investments have performed over time  Fixed annuities (invests in bonds)  Variable annuities (invests in mutual funds)

16. 16 Advantages and Disadvantages of Tax-Deferred Annuities Can be funded with retirement account dollars or after-tax dollars  No limit on contributions Interest earned is tax deferred  You pay taxes on any pre-tax annuity contributions and all tax-deferred earnings as you withdraw them in retirement  As with other retirement plans, when you retire you will likely be in a lower income tax bracket Downside – Very high fees!  Annuity company usually takes between 1½% to 3% every year! (That is on top of the mutual fund fees!)

17. 17 Review: Account Types Regular Account  Taxes paid each year Retirement: Pre-tax Contribution  Traditional IRA, 401(k), 403(b), SEP IRA, etc.  Tax-deferred (Taxes paid in retirement) Retirement: Post-tax Contribution  Roth IRA, “Roth 401(k),” “Roth 403(b)”  Tax-free in retirement Annuity  High fees  Earnings tax-deferred