Samp4

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Samp4

  1. 1. [Date of presentation] Investments in stocks, bonds and mutual funds: NOT FDIC INSURED NOT BANK GUARANTEED MAY LOSE VALUE
  2. 2. Even low inflation takes its toll Value of $50,000 salary adjusted for inflation at 3% per year $250,000 $219,195 $200,000 $163,102 $150,000 $121,363 $90,306 $100,000 $50,000 $50,000 $0 35 55 65 75 85 Age
  3. 3. Social Security is only one part of the picture 3% Social Security 18% Earnings 38% Investment income Pensions Other 18% 23% Source: Social Security Administration
  4. 4. An early start can make a big difference $250,000 $218,769 $200,000 $150,000 $148,269 $100,000 $50,000 $0 0 5 10 15 20 25 30 $3,000 invested annually in years 1–10 $3,000 invested annually in years 11–30 This is a hypothetical scenario assuming an 8% annual return and does not represent any particular investment.
  5. 5. Contribution limits are rising Maximum IRA Maximum IRA contribution for Tax year contribution for taxpayers taxpayers under age 50 or older1 age 501 2002–2004 $3,000 $3,500 2005 $4,000 $4,500 2006–2007 $4,000 $5,000 2008 and after $5,000 $6,000 1 Investors making less than these limits in annual compensation can contribute up to as much as they earn.
  6. 6. Tax advantages increase earning potential $400,000 $367,038 $350,000 $300,000 $244,067 $250,000 $200,000 $148,269 $150,000 $114,812 $100,000 $41,539 $46,936 $50,000 $0 After 10 years After 20 years After 30 years Taxable Tax-advantaged Assumes a fixed rate of return of 8% annually and a 27% tax bracket, with $3,000 annual contributions. It does not represent any particular investment.
  7. 7. IRA options at a glance Traditional IRA Roth IRA Deductible contributions that reduce taxable Yes, subject to income No income limits and other conditions High income may limit eligibility to contribute No Yes Tax-advantaged accumulation Yes Yes Tax-free qualified withdrawals of earnings1 No Yes Tax-free and penalty-free contribution No Yes withdrawals at any time Penalty-free withdrawals for qualified higher Yes Yes education expenses Penalty-free withdrawals prior to age 59½ in the case of death or disability, to meet certain Yes Yes2 deductible medical expenses, or for a first home purchase (subject to a $10,000 lifetime limit) Age limit for making contributions Age 70½ None Required withdrawals after age 70½ Yes No Withdrawals after age 59½ taxed as Yes No ordinary income 1 Eligible withdrawals of earnings can be made at attainment of age 59½, and in the case of death or disability or the purchase of a first home ($10,000 lifetime credit). 2 Amounts not held in the account for at least five years may be taxable.
  8. 8. Deductibility of Traditional IRA contributions for 2002 Married, filing jointly Spouse doesn’t Spouse participates in participate in a plan Single a plan at work at work You You don’t You You don’t You You don’t Modified adjusted participate participate participate participate participate participate gross income in a plan in a plan in a plan in a plan in a plan in a plan (MAGI) at work at work at work at work at work at work Less than $34,000 Full Full Full Full Full Full $34,000 – $43,999 Partial Full Full Full Full Full $44,000 – $53,999 None Full Full Full Full Full $54,000 – $63,999 None Full Partial Full Partial Full $64,000 – $149,999 None Full None Full None Full $150,000 – $159,999 None Full None Partial None Full $160,000 or more None Full None None None Full
  9. 9. Traditional IRAs for nonworking spouses for 2002 In cases where: The couple may contribute the lesser of: The couple’s compensation or $6,000 Neither spouse is age 50 or older ($3000 each) The couple’s compensation or $6,500 One spouse is age 50 or older ($3,000/$3,500) The couple’s compensation or $7,000 Both spouses are age 50 or older ($3,500 each) In some cases, the nonworking spouse may qualify for full or partial deductions: Working spouse Working spouse does not participate Modified adjusted participates in a in a retirement plan gross income (MAGI) retirement plan at work at work Less than $54,000 Full deduction Full deduction $54,000 – $63,999 Partial deduction Full deduction $64,000 – $149,999 No deduction Full deduction $150,000 – $159,999 No deduction Partial deduction $160,000 or more No deduction No deduction
  10. 10. Roth IRA vs. a taxable investment $250,000 $236,863 $200,000 $150,000 $170,331 $100,000 $50,000 $0 35 60 66 72 Age Growth and withdrawals, Roth IRA Growth and withdrawals, taxable account The chart assumes a $3,000 annual investment from age 35 to 60; 8% annual return during both investment and withdrawal years; a 27% tax bracket; and withdrawals of $2,500 per month beginning at age 60. It does not represent any particular investment.
  11. 11. Roth IRA eligibility and contribution limits Modified adjusted gross income (MAGI) Single taxpayer Married, filing jointly Less than $95,000 Full contribution Full contribution $95,000 – $109,999 Partial contribution Full contribution $110,000 – $149,999 No contribution Full contribution $150,000 – $159,999 No contribution Partial contribution $160,000 or more No contribution No contribution
  12. 12. Roll over retirement contributions Direct rollover Indirect rollover Cash distribution $7,500 $10,000 $5,000 $50,000 $40,000 $10,000 $27,500 Amount investor can put to work 20% mandatory tax withholding 10% penalty Other taxes
  13. 13. Go for growth Growth of $10,000 investment, 9/30/82–9/30/02 $250,000 $119,181 $200,000 $150,000 $100,000 $63,379 $50,000 $33,580 $0 9/82 9/84 9/86 9/88 9/90 9/92 9/94 9/96 9/98 9/00 9/02 Large cap stocks Government bonds Money market securities

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