1. Financial Algebra
4 April 2018

2. announcements
This week is PERT testing (Wednesday/Thursday) and continuing makeups
Thankfully, no one in here is on the list
Please remember: the first quiz of the quarter is due by April 5th
Regrades have not been completed/input into the system yet

3. Some of the Vocabulary for this section
401(k)/403(a) plans
Annuity
Annuity/fixed annuity
Individual retirement account (IRA)
Traditional IRA
Roth IRA
SEP-IRA
Pension plan
Vesting

4. Individual Retirement Accounts (IRAs)
Individual retirement accounts (IRAs): This is a type of savings account created by the government to encourage people to save for retirement
The government offers certain tax benefits that allow investors of an IRA to reduce their income taxes
The catch: They also put limits on when you can use IRA funds to make sure people only use them for retirement
All IRAs can include a range of different types of investments
There are two major types of IRAs and each has a specific tax benefit:
Traditional IRAs
Roth IRAs

5. Traditional IRAs
Traditional IRAs: These are IRAs that allow people to make tax deductible contributions, and all earnings are tax deferred
Tax deductible: A reduction of income that is able to be taxed.
This money is being taken out of your regular paycheck  so it’s a temporary “loss” to you
Tax deferred: The account’s earnings, such as from interest, are not taxed until they are withdrawn after retirement
This feature allows you to reduce your income taxes for the year you made the contribution (you owe the government less money for the year)
A tax-deferred account grows in value more quickly than one earning the same rate but in which earnings are taxed
When you do withdraw money, it may be at a lower tax rate because you will be retired

6. Traditional IRAs
The tax-deferred benefit of traditional IRAs is available to everyone
Certain higher-income individuals are not allowed to deduct contributions from their taxes
There are limits on how much a person can contribute to any IRA
This is based on age
Under 50: $5,500
Over 50: $6,500
You cannot contribute more than you’ve made in a year

7. Roth IRAs
Roth IRAs: These are IRAs whose contributions are not tax deductible, but the earnings from an eligible account are never taxed, even after withdrawal
Contribution limits are the same as traditional IRAs
Roth IRAs have their own rules for how the money is distributed at retirement
Eligibility to contribute to a Roth IRA phases out at high levels of income
Based on the amount of money you make, you can or cannot have a Roth IRA
The IRS actually has a formula for you to calculate the contribution limit
But “backdoor” options are available
…I didn’t look for the “backdoor” options because you won’t be tested on those

8. Employer sponsored retirement plans
I won’t be going over those today, but there are four:
Pension plans
Vesting
401(k)
403(b)
I will go over these next class