IRAs

IRAs : 

IRAs By : Shashi Ralebhat

Slide 2: 

Commonly used IRAs Traditional IRAs Roth IRAs SEP (Simplified Employee Pension) IRAs SIMPLE (savings incentive match plans) IRAs Education IRAs What is an IRA ? IRA is an Individual Retirement Account which is a personal savings plan that provides income tax advantages to individuals saving money for retirement purposes.

Slide 3: 

1 : Traditional IRAs Tax deductible contributions (depending on income level) Withdrawals begin at age 59 1/2 and are mandatory by 70 1/2 Taxes are paid on earnings when withdrawn from the IRA Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.) Can be opened through a bank or brokerage house All funds withdrawn (including principal contributions) before 59 1/2 are subject to a 10% penalty Traditional IRAs (originally called Regular IRAs) were created in 1975

Slide 4: 

1 : Traditional IRAs……. The traditional IRA was essentially the only choice until the late 1990's when Congress passed the Taxpayer Relief Act of 1997, at which time the Roth IRA was created Available to everyone, no income restrictions IRA Contribution Limits

Slide 5: 

2 : Roth IRAs Can be opened through a bank or brokerage house Contributions are not tax deductible No mandatory withdrawal age All earnings and principal are 100% tax free if rules and regulations are followed Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.) The Roth IRA was born as a result of the Taxpayer Relief Act of 1997.Named for the late Senator William V. Roth Jr.

Slide 6: 

2 : Roth IRAs…… Available only to single-filers making up to $95,000 or married couples making a combined maximum of $150,000 annually IRA Contribution Limits

Slide 7: 

3 : SEP (Simplified Employee Pension) IRAs Tax deductible contributions Can be opened through a bank or brokerage firm or mutual fund company SEP IRAs are adopted by business owners to provide retirement benefits for themselves and their employees. Withdrawals after age 59 1/2 are taxed as ordinary income Withdrawals prior to age 59 1/2 may incur a 10% IRS penalty as well as income taxes

Slide 8: 

Advantages of SEP IRA to Employers No annual contributions required; you decide how much you want to pay up to 25% of contribution per annum. There are no complicated forms to fill out, no annual IRS reports to file, no annual 5500 form filing and Administrative costs are minimal also It provides a low cost recruitment benefit that helps keep and attract high quality employees. 3 : SEP IRAs........ Which employees are eligible ?? Any employee who is at least 21 years of age, collects an income of more than $450/year and has worked for a particular employee three out of five years prior to the employer’s first contribution is allowed

Slide 9: 

4 : SIMPLE (Savings Incentive Match PLan for Employee) IRAs Have a business with, generally, 100 or fewer employees. Employees can contribute $11,500 If the employee is 50 years or older, they can make additional “catch-up” contributions of $2,500 for a total of $14,000. Employers can contribute either a dollar-for-dollar match up to 3% of pay or a 2% nonelectric contribution into the account of each of their employees The employer establishes individual Traditional IRA accounts for each of his or her employees. Both employer and the employees can then contribute to these accounts, earning tax benefits both at the time of the contribution and by deferring the taxes that would be owed on the profits earned on the assets in the account.

Slide 10: 

Individuals who make a withdrawal before age 59 ½ are required to pay an additional 10% tax This tax is increased to 25% if the withdrawal occurs within the first two years of participation Benefits Easy to set up and run Administrative costs are low Employer contributions are tax deductible Attract and retain quality employees No annual government reporting required Employees can contribute, on a tax-deferred basis, through convenient payroll deductions 4 : SIMPLE IRAs..........

Slide 11: 

5 : Education IRAs The education IRA is now referred to as the Coverdell ESA A savings plan for higher education The total contributions for the beneficiary of this account cannot be more than $2,000 in any year, no matter how many accounts have been established. A beneficiary is someone who is under age 18 or is a special needs beneficiary Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed The funds in an education IRA can be withdrawn tax free when they are needed for educational purposes.

Slide 12: 

5 : Education IRAs.......... The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses. If the distribution exceeds qualified education expenses, a portion will be taxable to the beneficiary and will usually be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship If there is a balance in the ESA when the beneficiary reaches age 30, it must be distributed within 30 days.

Slide 13: 

Thank You shashi.ralebhat@gmail.com