The Nuts and Bolts of IRA s:

Transcription

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2 The Nuts and Bolts of IRA s: Traditional, Roth, Roll-overs, Conversions What s this all About? Karen P. Schaeffer, CFP September 16, 2015

3 Fully fund your TSP first.

4 What s an IRA? Individual Retirement Account Allows you to save for retirement in a tax advantaged way An employer sponsored plan may not be enough to accumulate the savings you need

5 Traditional vs. Roth When to use Traditional vs. ROTH IRA? 5

6 Traditional may be deductible Pay Taxes Now or Later Contribution and earnings taxed at withdrawal Not deductible if you (and/or spouse) are covered by an employer plan and your MAGI reaches certain limits (2015: MFJ $118K, Single $71K) Roth is not deductible Contribution and earnings tax free at withdrawal

7 Contribution Limits For the 2015 tax year: If you're under age 50, you can contribute up to $5,500. If you're age 50 or older, you can contribute up to $6,500

8 We Roth IRAs

9 But, Roth IRAs have an income test. You can contribute the full amount if you file: Married and MAGI is less than $183K Single and MAGI is less than $116K (2015 tax year)

10 The example is hypothetical and is provided for educational and illustrative purposes only. It is not intended to represent any specific return or investment, nor is it indicative of future results. The rate of return on investments will vary over time. Taxable vs. Tax Deferred

11 Roth TSP vs. Traditional TSP TSP Options Potentially have TWO types of balances A traditional (non-roth) TSP balance A Roth TSP balance Agency Contributions Will ALWAYS = traditional (non Roth) Your Contributions You may choose Money already in your account Will remain part of your traditional You CANNOT convert it to Roth 11

12 Caution What if you don t live long enough to get a benefit? What if tax laws change? What if your tax bracket lowers?

13 Spending-Down Phase Spending down money wisely requires a whole new strategy 13

14 Order of Spend-Down in Retirement Taxable: Personal Tax Deferred: Traditional TSP and Traditional IRA Tax Free: Roth IRA and Roth TSP

15 Leave Money in the TSP Limited choices for withdrawal Withdrawals are made pro rata Required distribution at 70½ Can continue inter-fund transfers

16 Monthly Withdrawals Payments based on IRS life expectancy table or specific dollar amount Predictable monthly income, as long as money lasts Taxed as ordinary income from traditional Tax free from Roth

17 Single Payments Total or Partial Withdrawal Partial withdrawal can only be done once in a lifetime Taxed as ordinary income from Traditional Tax free from Roth

18 Annuity TSP will purchase Met-Life annuity Guaranteed monthly income for life Irrevocable ordinary income from Traditional Tax free from Roth

19 Transfer to IRA All or part can be transferred More investment choices Flexible distribution options Non taxable

20 IRA Vocabulary Roll Convert Transfer Contribute

21 Transfer vs. Rollover Transfer and Rollover are NOT the same thing Transfer means money is sent to IRA company: custodian to custodian Rollover means money is sent to you: taxes will be withheld even if you re-invest in Traditional IRA within 60 days

22 Roth Conversion Income tax applied to amount converted If deductible IRA is worth $50,000 in a 25% tax bracket, a conversion triggers $12,500 of tax Won t be made up if you withdraw in near future Very complicated if multiple IRAs

23 Choosing an IRA Custodian Fees Investment Options Services Practical Consideration

24 Diversification Don t put all your eggs in one basket! 24

25 The Cost of Investing Expense ratio includes, management, administrative, marketing, and distribution fees Purchase or redemption fees Funds can be load or no load Morningstar.com research the cost of comparable funds

26 IRA Penalty Fee Exceptions Unreimbursed Medical Expenses: If greater than 7.5% AGI Higher Education Expenses First Time Home Owner: $10,000 limit Rollover into another qualified plan

27 TSP at Retirement Penalty free withdrawals from the TSP are allowed at 55 From a Traditional IRA they begin at age 59 ½

28 Required Minimum Distributions Traditional IRA 70 ½ Roth IRA None

29 Required Minimum Distributions Traditional TSP 70 ½ Roth TSP 70 ½ The calculation of your RMD takes into account both Traditional and Roth TSP balances

30 Finding Retirement Advice Be able to articulate what it is you want People give advice, not firms CFP Board of Standards, Inc.

31 Be prepared to Ask What qualifies you to give me advice? How much will it cost?

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33 Karen P. Schaeffer, CFP is the Managing Member and Co-founder of Schaeffer Financial LLC, an SECregistered investment advisory firm located in Rockville, Maryland. This presentation is for informational and educational purposes only. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or products made reference to directly or indirectly in this presentation will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. The views and opinions expressed in this presentation are those of Karen P. Schaeffer. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Any hypotheticals or examples are for illustrative purposes only and not indicative of actual results. Past performance may not be indicative of future results Moreover, you should not assume that any discussion or information contained in this presentation serves as the receipt of, or as a substitute for, personalized investment advice from Schaeffer Financial LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of Schaeffer Financial LLC's current disclosure brochure discussing its advisory services and fees is available for review upon request.

34 Thank You for attending today s webinar! This webinar is brought to you through a partnership between WAEPA and NITP. Upcoming Webinar Topic TBD October 21, 2015 at 1:00 P.M. ET Questions to: [email protected]