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Ira Optimized Skills 101 Pp Tam Inc Rev Slide Share


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Ira Optimized Skills 101 Pp Tam Inc Rev Slide Share

  1. 1. IRA 101 Optimized Skills a Road Map to Success
  2. 2. What is an IRA? <ul><li>An IRA is….. </li></ul><ul><li>INDIVIDUAL RETIREMENT ACCOUNT. </li></ul><ul><li>P ersonal savings plan that provides income tax advantages to individuals saving money for retirement purposes. </li></ul>
  3. 3. How does it work? <ul><li>You invest money in an IRA, up to the amounts allowable under the tax law. These investments are termed &quot;contributions.” </li></ul><ul><li>The contributions, as well as the earnings and gains from these contributions, accumulate tax-free until you withdraw the money from the account. </li></ul><ul><li>The withdrawals of the funds from the IRA are termed &quot;distributions.&quot; Distributions are subject to income taxation, generally in the year in which you receive them. </li></ul>
  4. 4. IRA Contribution Limits <ul><li>YEAR AGE 49 & BELOW AGE 50 & ABOVE </li></ul><ul><li>2002-2004 $3,000 $3,500 </li></ul><ul><li>2005 $4,000 $4,500 </li></ul><ul><li>2006-2007 $4,000 $5,000 </li></ul><ul><li>2008 $5,000 $6,000 </li></ul><ul><li>2009 $5,000 $6,000 </li></ul><ul><li>2010 Indexed to Inflation Indexed to Inflation </li></ul>
  5. 5. What are the different types of IRA’s?
  6. 6. Traditional IRA <ul><li>The Roth IRA is an Individual Retirement Account, where contributions are made on a non-deductible basis. Earnings and the withdrawal of those earnings are income tax-free if the account is held for at least five years and you are 59½ or older. </li></ul><ul><li>The Traditional IRA is an Individual Retirement Account that may allow contributions to be made on an income tax-deductible basis. </li></ul><ul><li>Anyone under age 70½ with earned income can contribute up to $5,000 per year to a Traditional IRA. </li></ul><ul><li>Earnings grow income tax-deferred, while withdrawals of income tax-deductible contributions and earnings are taxed at ordinary income tax rates. </li></ul>Roth IRA
  7. 7. Traditional vs. ROTH <ul><li>The biggest difference between the Traditional and Roth IRA is the way the U.S. Government treats the taxes. </li></ul><ul><li>If you earn $50,000 a year and put $2,000 in a traditional IRA, you will be able to deduct the contribution from your income taxes…….. </li></ul><ul><li>On the other hand, if you put the same $2,000 in a Roth IRA, you would not receive the income tax deduction </li></ul>
  8. 8. Coverdell Education Savings Accounts <ul><li>A savings plan for higher education. Parents and guardians are allowed to make nondeductible contributions to an education. </li></ul><ul><li>The funds must be used before the child reaches age 30 </li></ul><ul><li>Q ualified education expenses </li></ul><ul><li>tuition; </li></ul><ul><li>fees; </li></ul><ul><li>books; </li></ul><ul><li>supplies; </li></ul><ul><li>equipment; and </li></ul><ul><li>room and board </li></ul>
  9. 9. Coverdell Education Savings Accounts cont’d.. <ul><li>The tax penalty does not apply if the Coverdell Education Savings Account distribution is due to: </li></ul><ul><li>death; </li></ul><ul><li>disability </li></ul><ul><li>because the beneficiary received a tax free scholarship on an educational assistance allowance; </li></ul><ul><li>There is a 10% tax penalty on </li></ul><ul><li>Any </li></ul><ul><li>taxable distributions from a Coverdell Education Savings Account. </li></ul>
  10. 10. <ul><li>Also known as a Simplified Employee Pension </li></ul><ul><li>The SEP is an IRA-based plan to which employers may make tax-deductible contributions on behalf of eligible employees. The employer is allowed a tax deduction for plan contributions, which are made to each eligible employee's SEP IRA on a discretionary basis. </li></ul><ul><li>Employees do not pay taxes on SEP contributions, but these contributions are taxed when the employee receives a distribution from the SEP </li></ul><ul><li>Because the funding vehicle for a SEP plan is a Traditional IRA, SEP contributions, once deposited, become Traditional IRA assets and are subject to many of the Traditional IRA rules. </li></ul>SEP IRA - Simplified Employee Pension
  11. 11. Simple IRA <ul><li>Know as a Savings Incentive Match Plan for Employees </li></ul><ul><li>or </li></ul><ul><li>SIMPLE IRA </li></ul><ul><li>This Retirement Plan that may be established by employers including self-employed individuals, sole proprietorships and partnerships, allows eligible employees to contribute part of the PRE-TAX compensation to the plan . This means that the tax on the money is deferred until it is distributed. This contribution is called and elective-deferral or salary reduction contribution. </li></ul><ul><li>Like other employer plans, the SIMPLE IRA allows employers a tax deduction for contributions they make to the SIMPLE IRA plan. </li></ul><ul><li>The employee’s contributions to the SIMPLE IRA are not taxed, but distributions from the SIMPLE IRA are. </li></ul>
  12. 12. IRA Recap <ul><li>Traditional IRA: </li></ul><ul><ul><ul><li>Under the age of 70 ½ , with earned income who want tax –deferred retirement savings </li></ul></ul></ul><ul><ul><ul><li>Anticipating lower tax bracket at retirement </li></ul></ul></ul><ul><ul><ul><li>Need the tax deduction now vs. future tax free earnings </li></ul></ul></ul><ul><ul><ul><li>Do not have an employer-sponsored retirement plan available to them </li></ul></ul></ul><ul><li>Key Selling Points: </li></ul><ul><ul><ul><li>Convenient, flexible way to save for retirement </li></ul></ul></ul><ul><ul><ul><li>Possible tax deductions </li></ul></ul></ul><ul><ul><ul><li>Federal income tax-deferred </li></ul></ul></ul>
  13. 13. Recap cont’d…. <ul><li>Roth IRA </li></ul><ul><ul><li>70 ½ and over who are still receiving earned income </li></ul></ul><ul><ul><li>Younger than 70 ½ who receive earned income </li></ul></ul><ul><ul><li>Do not have an employer-sponsored retirement plan available </li></ul></ul><ul><ul><li>Are saving for a first home </li></ul></ul><ul><ul><li>Have AGI up to $95k(indv) 150k (joint) may make full contribution </li></ul></ul><ul><ul><li>Willing to give up immediate tax deduction for future tax-fee earnings </li></ul></ul><ul><li>Key Selling Points: </li></ul><ul><ul><ul><li>Tax-free earnings </li></ul></ul></ul><ul><ul><ul><li>Access to contributions </li></ul></ul></ul><ul><ul><ul><li>No mandatory distribution requirement </li></ul></ul></ul>
  14. 14. Recap cont’d…. <ul><li>SEP plans or Simplified Employee Pensions :Although the employer's size is not a criterion for establishing a SEP, this type of retirement plan is used almost exclusively by small businesses. </li></ul><ul><ul><li>Businesses using SEPs must follow two simple rules that limit their ability to target tax benefits toward highly compensated employees: </li></ul></ul><ul><ul><li>First they must include all qualifying employee in the plan </li></ul></ul><ul><ul><li>Second they must contribute to each employee’s account an amount proportional to his or her compensation. </li></ul></ul>
  15. 15. Recap cont’d…. <ul><li>Savings Incentive Match Plans for Employees </li></ul><ul><li>SIMPLEs offer a trade-off between less burdensome qualification requirements and slightly less favorable tax treatment. </li></ul><ul><li>A SIMPLE can be set up in the form of contributions to each employee's IRA or as a 401k Plan. </li></ul><ul><li>SIMPLEs must cover all qualified employees and must use one of two formulas to determine contributions. </li></ul><ul><ul><li>first formula, the employer matches the employee's contributions dollar for dollar up to a total of 3 percent of compensation </li></ul></ul><ul><ul><li>Under the second formula, the employer contributes 2 percent of compensation regardless of the employee's contribution. </li></ul></ul>
  16. 16. Questions?
  17. 17. Time to see how well have you been taking notes…..
  18. 19. QUESTION #1:
  19. 20. QUESTION #1:
  20. 21. Q2:
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  22. 23. Q3
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  24. 25. Q4
  25. 26. Q4
  26. 27. Q5
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  28. 29. Q6
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  30. 31. Q7
  31. 32. Q7
  32. 33. Q8
  33. 34. Q8
  34. 35. The END….. <ul><li>Created by & for Tara A. McCallum INC. </li></ul>
  35. 36. IRA Feature Comparison
  36. 37. IRA Features: Traditional IRA ROTH IRA Coverdell IRA SEP IRA Earnings are federal income tax deferred until distribution * * Earning are federal income tax fee and IRS penalty free if certain conditions are met * * Contributions may be withdrawn federal income tax free and IRS penalty-free at any time * Distributions may begin at age 59 ½ * * No required minimum distributions at age 70 ½ * Child must be under the age of 18 for contributions and funds and must be used before the child reaches age 30 * First Required Minimum Distribution must be taken by April 1 of the year following the year the client turns 70 ½ * * <ul><li>Annual contribution limits </li></ul><ul><li>$5000 up to age of 50 </li></ul><ul><li>$5000 if the client is 50+ </li></ul><ul><li>$8-10k annul. Per couple depending on age </li></ul>* * $2000k per child * Contributions can be made for tax years prior to age 70 ½ if indv. Received earned income during those years * * * No age limit on contributions * *
  37. 38. Glossary of Terms <ul><li>Adjusted Gross Income:
This is the calculation point between total gross income subject to reporting to the IRS and taxable income, which is the net income after all deductions and exemptions are subtracted. The importance of your Adjusted Gross Income (AGI) is that it is increasingly the starting point for figuring all deductions that are based on or limited by a percentage of your income. Your AGI may be found on line 33 of Form 1040. </li></ul><ul><li>Elective-Deferral Contribution: A contribution arrangement of an employer-sponsored retirement plan under which participants can choose to set aside part of their pretax compensation as a contribution to the plan. Also known as &quot;salary-deferral&quot; or &quot;salary-reduction contributions&quot;. </li></ul>
  38. 39. <ul><li>401(k)-type plan: an employment-based defined-contribution plan that allows employees to make tax-deferred contributions (for example, 403(b) plans and 457 plans). </li></ul>