SEP IRA

Posts Tagged ‘SIMPLE IRA’

Public Health 257b – Fall 2009 – Lecture 2

Question: Can someone tell me, as simple as possible, the pros and cons of an IRA and Roth IRA?

I like to contribute at least a $500-$1000 a year but I don’t which one will be best for me. Are there any other investments I can put money into?

Answer: Roth IRA is much better. For example if you are 29 and invest $3000 a year into a traditional ira your Contribution is tax deductable. If you are in a 33%(Federal&State combined) tax bracket you would have $1000 of tax savings a year and when you reach 59 1/2 you would have a total of $30,000 tax savings not paid to the IRS. Sound good. Let’s say you got an average of 12% (typical mutual fund average)on the money you invested it would now have a balance of about $500,000. If you did not want to deplete the money and make it last you would have to withdraw the interest that this amount your earning. Let’s say you are getting 10% which would mean your withdrawing $50,000 a year without depleting the retirement account. If taxes stay the same and don’t go up 33% of that money would have to be paid to the IRS or about $15,000. In 2 years of retirement you pay back 30 years of tax savings. Imagine if you lived to 89 you would have ended up paying $450,000. How does that make you feel? What if you invested $3000 a year into a ROTH IRA. A ROTH IRA is different and allows to take out your money tax free during retirement because you fund it with after tax dollars. You would get to withdraw your $50,000 a year and not pay a dime of taxes. The catch is you don’t get $1000 a year in tax savings. These are called qualified plans because they are qualified with the IRS. Do you want Uncle Sam planning your future. I would say a ROTH IRA is definitely much better because it provides you with more money at retirement which is the whole plan of setting up a retirement account anyway. It’s not about how much interest your earning but how much interest your earning after taxes that really makes the difference. Also for the majority of people find themselves in a higher tax bracket when they retire for several reasons such as the mortgage is paid off and their kids have moved out of the house. This is your life and retirement plan and is something you should consider very carefully and research very thoroughly. I hope this helps!
Aloha

If I know nothing about note buying will this be hard to learn?

Question: 401 in-kind stock rollover to IRA– liquidating? Or get certificates transferred?

I have the option of rolling my stock over by liquidating to cash and repurchasing stock at market close today, or waiting to have the stock certificates tranferred to me to deposit into my new Rollover IRA.

Answer: you are correct, as long as the investment stays in a Qualified Retirement Plan, there is no worry about a taxable event/capital gains tax. The benefit by not selling and then purchasing would be the possible appreciation you would get. The time it takes to liquidate and then repurchase could mean a possible gain you could miss on the upside. However, if someone tells you to sell and buy the exact same thing, that is a BIG red flag for whoever tells you to do that. That person could lose their investment licenses if their compliance department knows that.

Personal Finance: 401(k) : How to Avoid Penalties With a 401(k) Rollover