1. MISCELLANEOUS TOPICS
Retirement Accounts, Regular Accounts, and Annuities
Why? ’Cause ya’ gotta’ put yer money somewhere!

2. Regular Taxable Accounts versus Retirement Accounts
Bonds
“Cash”
Bonds
Stocks
Options
Futures
Stocks
“Cash”
Margining
Real Estate
Shorting
Mutual Funds
Mutual Funds
Taxable Account
Retirement Account
Regular account
IRA, 401(k), 403(b), Roth IRA, etc.
No limit on contributions
Strict limits on contributions
No limits on investment types
Strict limits on investment types
Pay taxes every year
Tax-deferred (Roth IRA – tax-free)
Although there are many subtle and not-so-subtle differences, the major differences are how they are taxed by the IRS, how much money you can contribute, and what you can have in the account.

3. Types of Retirement Accounts
Pre-tax Contributions
401(k), 403(b) for private & public employees
Traditional IRA for everyone
SEP-IRA, SIMPLE IRA, Keogh for self-employed
Tax Break Now
Deduct contributions from income tax
Pay Taxes in Retirement
Post-tax Contributions
Roth IRA for (almost) everyone
“Roth 401(k),” “Roth 403(b)”
Tax Break Later
Tax-Free in Retirement!

4. Individual Retirement Arrangement
“What? I thought it stood for Individual Retirement Account!?”
The most popular personal retirement plan
Now referred to as the “Traditional IRA”
Anyone with earned income can contribute to a Traditional IRA
Contributions are normally tax-deductible (“pre-tax”)
Unless you have a retirement plan at your employment and make over a certain amount
Contribution limits are increasing
Investment grows tax-deferred
You pay taxes on the money as you withdraw it once you are retired
Normally, after 59½ years of age
Mandatory withdraws begin at age 70½

5. And the IRA’s Many Cousins…
401(k) – corporations and other businesses
403(b), 457, 401(a) – public organizations
SEP IRA – self-employed, small business
SIMPLE IRA – self-employed, small business
Simple 401(k) – self-employed, small business
SAR SEP – self-employed, small business
Keogh – self-employed, small business
Roth IRA – “post-tax” contributions
Now “Roth 401(k)’s” – “Roth 403(b)’s”
They all work very much like the Traditional IRA except for the Roth IRA, “Roth 401(k),” and “Roth 403(b).”

6. But the whole $100 still goes into your account
A Pre-tax Contribution Lowers Your Taxes Now Example: 401(k), 403(b), Traditional IRA
You contribute via your paycheck:
$100
Your Federal tax withholding is lowered by:
$25
Your California tax withholding is lowered by: $8
Total government subsidy:
$33
Your take home pay is only reduced by:
$67
But the whole $100 still goes into your account

7. “So What is the Catch?”
You pay income tax on any amounts withdrawn in retirement
But people in retirement are usually in a lower tax bracket
If not, Congratulations!
If you withdraw the funds before retirement…
You pay the income tax, and
You pay a 10% penalty
Exceptions for first home purchase ($10,000), higher education, medical disability and financial hardship (hard to get accepted by IRS)

8. So Why Contribute to a Roth IRA?
A Post-tax Contribution Gives No Tax Break Now Example: Roth IRA, “Roth 401(k)”
You contribute to a Roth IRA:
$100
Your Federal tax withholding is lowered by: $0
Your California tax withholding is lowered by:
Total government subsidy:
Your disposable income is reduced by:
So Why Contribute to a Roth IRA?

9. “Because a Roth IRA is So Cool!”
Tax-Free in Retirement is a Golden Opportunity
No other investment choice comes close
Eventually, they will probably be gotten rid of
Plus, you can withdraw the contributions at any time with no penalty
You have already paid tax on the contributions
This makes the Roth IRA also an excellent intermediate-term investment account
Purchase of a house or other high-ticket item
Great for college expenses
Currently not used in Financial Aid calculations

10. But a Roth IRA is Not for Everyone
Limitations on Roth IRAs Contributions
Only single taxpayers with an AGI of $112,000 or less and married couples with an AGI of $178,000 or less in 2013 can fully contribute to a Roth IRA
If you don’t qualify, Congratulations!
But you can contribute to a Roth IRA anyway
If you find that you have made over the limit, you can “recharacterize” the contributions into a Traditional IRA (which does not have the same limitations) before you file your taxes
And then you convert the Traditional IRA to a Roth
I know. I know. Who voted for these bozos?
Oh, yeah. We did…

11. IRA / Roth IRA Contribution Limits
Year
Under 50
Age 50 and Over
2013
5,500
6,500
Contributions are limited to the lesser of your gross salary or the maximum yearly contribution. If you make at least $5,500 in any year, you have until April 15th of the next year to put the maximum into a IRA or Roth IRA. Your spouse is also eligible for contributions even if he/she does not work.

12. 401(k), 403(b) Contribution Limits
Year
Under 50
50 & Over
2013
17,500
23,000
Contributions are limited to the lesser of your gross salary or the maximum yearly contribution. (Same rules as Traditional IRA / Roth IRA.) In other words, if you make $17,500 in year 2013, you could put your entire income into a 401(k) or 403(b) or These amounts are now indexed to inflation and go up over time. There is a loophole in the law that allows those in the public sector to “double contribute” $17,500 into a 403(b) and $17,500 into a 457 – or $23,000 and $23,000 if you are 50 or over!

13. Tax Credit for Low Income Earners
Up to 50% of contributions
Maximum of $2,000
Based on Adjusted Gross Income
$29,500 or less – single filers
$59,000 or less – married filing jointly
$44,250 or less – head of household
A tax credit is a dollar for dollar reduction of income taxes
If you do your own taxes, do not forget this. If you have someone do them, make sure to remind them you put money away in a retirement account. TurboTax handles these well.

14. “Roth 401(k)” / “Roth 403(b)”
If your employer offers the option, you are able to place after-tax dollars into your 401(k) or 403(b) accounts
Just like a Roth IRA
Employer matches will continue to be pre-tax contributions
However, contributions are not able to be withdrawn without penalty or taxes until retirement (unlike a Roth IRA)
This is a great option for those who do not need the tax break now. However, unless your employer offers matching contributions, I prefer the Roth IRA.

15. What is an Annuity?
An annuity is a life insurance product designed to provide a guaranteed income
Annuity options include income for a set number of years, for as long as you live, or for as long as you and your spouse (or other dependent) lives if he or she outlives you
The amount you get is based on which of the above options you pick, how much you have contributed, and how well your annuity investments have performed over time
Fixed annuities (invests in bonds)
Variable annuities (invests in mutual funds)

16. Advantages and Disadvantages of Tax-Deferred Annuities
Can be funded with retirement account dollars or after-tax dollars
No limit on contributions
Interest earned is tax deferred
You pay taxes on any pre-tax annuity contributions and all tax-deferred earnings as you withdraw them in retirement
As with other retirement plans, when you retire you will likely be in a lower income tax bracket
Downside – Very high fees!
Annuity company usually takes between 1½% to 3% every year! (That is on top of the mutual fund fees!)

17. Review: Account Types Regular Account Retirement: Pre-tax Contribution
Taxes paid each year
Retirement: Pre-tax Contribution
Traditional IRA, 401(k), 403(b), SEP IRA, etc.
Tax-deferred (Taxes paid in retirement)
Retirement: Post-tax Contribution
Roth IRA, “Roth 401(k),” “Roth 403(b)”
Tax-free in retirement
Annuity
High fees
Earnings tax-deferred