Social Security
1. Describe the retirement plan.
Social Security is when , normally, 6.2% of a workers earnings is taken out of their paycheck for Social Security and 1.45% of their earning is taken out for Hospital Insurance for Medicare. The employers of these workers pay an equal amount so all together is about 12.4% for Social Security and 2.95 for Medicare. Social Security contributions are pains on earning only up to a cap, Hospital Insurance is not. The self-employed pay the employee and employer part of the contributions and they get a deduction on their personal income taxes.
2. Is this retirement plan tax deferred?
Yes, rising income can subject 50% or even 85% of Social Security benefits to taxation until a cap is met. If your combined income is below $25,000 than you will not be taxed.
3. When are you allowed to take money out of this retirement plan?
You can start receiving your benefits as earl as age 62 but the amount of benefits received will be less than your full retirement benefit amount , up to 30% less. Full retirement age is 66 years of age.
4. Is there a maximum contribution per year? What is the maximum contribution if there is?
Social security functions as tax, so the contribution is dependent upon your income. This means there is not a max contribution.
5. Do you get paid for this retirement plan for life?
While you can get money from social security for the rest of your life, it is recognized that social security is not enough to live comfortably. Most of the time people have income coming from somewhere else as well as from social security.
6. Can you leave the money in this account after retirement? If not, when do you have to close the account?
The money is social security only becomes accessible when someone becomes disabled or retires, at regiment age. The government decides how much money someone will receive from social security. You don't ever have to close the account necessarily, because after someone dies their family or whomever is signed to receive the money will continue to get money, as long as they are eligible.
7. Is there a monthly minimum amount you have to withdraw during retirement and how much is it?
No, depending on the economy at that point in time the Social Security Administration will decide how much you will be given each month. It is not up to the person receiving insurance at all.
8. What are the advantages and disadvantages of this retirement plan?
Social Security is a safety net for all citizens, regardless of who you are. Every working citizen has to pay into social security and eventually they will reap the benefits of social security when they become of age. Spouses and ex-spouses (if the marriage lasted longer than 10 years) of retirees receive benefits, as well as children: under the age 18, disabled before the age 22, and 19 while still in high school. Children, young widower, old widower, disabled widower, and parent of a diseased worker can continue to receive benefits. Also, the spouse , children, or a worker themselves can continue to receive benefits if the worker becomes disabled. The financing of social security has proven to be more problematic as time goes on. The system as designed to pay for itself as the citizens in the workforce would pay for those retired but this equation is not unreliable because the number of retirees outnumbers the numbers of workers. Another disadvantage is that, the money citizens contribute to social security in their lifetime could potentially yield higher returns if they were invested else where, privately.
401K
1. Describe the retirement plan.
A 401K is a retirement plan that is, most of the time, sponsored from the employers to their employees. You yourself get to decide how much money you put into the account and your employer will match the amount exactly or almost exactly.
2. Is this retirement plan tax deferred?
Yes, you will not be taxed on your savings until you withdraw money.
3. When are you allowed to take money out of this retirement plan?
59 1/2 is the youngest you can start taking money out of the account, or if you leave your employer at 55 or older. If money is withdrawn before that then there will be a 10% charge alone with a regular tax charge.
4. Is there a maximum contribution per year? What is the maximum contribution if there is?
$17,500 is the max you're able to contribute if you're younger than 50 years old. $23,000 is the max contribution if you are older than 50 years old.
5. Do you get paid for this retirement plan for life?
No, you are not paid from this regiment plan for life.
6. Can you leave the money in this account after retirement? If not, when do you have to close the account?
When you turn 70 1/2 years old you have to stop putting money into the account and start withdrawing. When all the money is withdrawn from the account the account will be closed. You can move money into and IRA rollover account, move money into a new employers plan, or leave the money if the account has $5,000 or less.
7. Is there a monthly minimum amount you have to withdraw during retirement and how much is it?
The monthly minimum depends on your life expectancy most of the time. Once in a blue moon there will be an account that has a set number that has to be withdrawn every month.
8. What are the advantages and disadvantages of this retirement plan?
The money is tax deferred , and your employer is putting in money as well. So you're not using only you're money the whole time. The only disadvantage I can think of is that, you have to wait till a certain age to start taking money out.
Roth IRA
1. Describe the retirement plan.
A Roth IRA is a retirement plan for people under the age of 70 1/2. Money is taken out of your paycheck every month and contributed to the Traditional IRA account. The account is tax deferred until you start to withdraw money from the account. A traditional IRA account belong to the retiree and the retiree only, it has nothing to do with the employer (like the 401K does)
2. Is this retirement plan tax deferred?
Yes, the Roth IRA is tax deferred.
3. When are you allowed to take money out of this retirement plan?
You can take out money from the account at any age really, but if its before 59 1/2 then you will be taxed 10%.
4. Is there a maximum contribution per year? What is the maximum
contribution if there is?
If you are younger than 50 years of age than the maximum is $5,500. When you reach over age 50 then you can start paying $1,000 more which would be a total of $6,500.
5. Do you get paid for this retirement plan for life?
This really depends on hoe much money you're putting in and saving while you're working. Once you start withdrawing money, if you can live comfortable with the amount of money you have in the account then by all means , live off it.
6. Can you leave the money in this account after retirement? If not, when do you have to close the account?
You can leave as much money in your account as you want until the age of 70 1/2, at that age you HAVE to start withdrawing money.
7. Is there a monthly minimum amount you have to withdraw during retirement and how much is it?
There isn't a monthly minimum amount of money that you have to withdraw monthly, a Roth IRA follows RMD. The RMD can be calculated by taking the total account balance and dividing it by your life expectancy.
8. What are the advantages and disadvantages of this retirement plan?
An advantage to this plan is that the money is tax deferred , also , the longer you let the money go untouched the more the money will grow because of interest. Another advantage is that you have a lot of choices of things to invest in. A disadvantage is that the max amount you're allowed to contribute into the account each year isn't very big. Another disadvantage is that, once you start to withdraw money you will be taxed.
403b Traditional
1. Describe the retirement plan.
A traditional 403b plan is mostly for employees who work in the educational fields or churches, non-profit organizations. This plan is also known as the TSA. This plan is similar to the 401K where, when you contribute money into it then your employer will also contribute money.
2. Is this retirement plan tax deferred?
Yes, this plan is tax deferred.
3. When are you allowed to take money out of this retirement plan?
You can start to withdraw money when you are 59 1/2 , if you start younger then you will be charged a to% penalty fee. There are exceptions to the rule, but these are very specific. For example, if yours disabled or dealing with a financial hardship.
4. Is there a maximum contribution per year? What is the maximum contribution if there is?
Under 50 years of age the max is $18,000, over the age of 50 than the max is $23,000 .
5. Do you get paid for this retirement plan for life?
By owning a 403b Traditional you will be covered for life.
6. Can you leave the money in this account after retirement? If not, when do you have to close the account?
You can leave money in the account until the age of 70 if you which to gain more money with interest, but after the age of 70 you have to start making withdraws.
7. Is there a monthly minimum amount you have to withdraw during retirement and how much is it?
With 403b's there are RMD's where a minimum amount needs to be withdrawn at anytime within a year. If you don't with draw this amount than there could be a really serious tax, it could be up to 50% of the amount of money you were supposed to withdraw.
8. What are the advantages and disadvantages of this retirement plan?
Advantages of the 403b is that your employer could match the money you contribute into the account, and that savings grow tax free. Disadvantages are that, there are penally fees and you must start to withdraw money at a certain age. The age restrictions as a whole is a disadvantage.
PICK TWO RETIREMENT PLANS FOR YOURSELF AND ANSWER QUESTIONS 1-6 FOR BOTH RETIREMENT PLANS.
1. Which two retirement plans did you pick? (one must be from your chosen career)
401K
Roth IRA
2. Look at your current budget. How much money do you have available to make investments? How much will you invest each month?
Assuming that iim around 35 years old, I will have $6,763.94.
Invest into 401K - $1,000
Invest into Roth IRA - $1,000
3. Calculate the amount of money you will have at retirement using an equation for both of your retirement accounts. Assume you are retiring at age 60 and have been making month contributions once age 35.
401K- 1000[(1+0.00167)^300-1/0.00167]= $987,234.32
Roth IRA- 1000[(1+0.00167)^300-1/0.00167]= $987,234.32
4. How much money will you have saved by the time you retire based on your online budget.
In entry 25 and 26
5. Payment is different for each retirement plan. How are the payments handles at retirement for your two investments? For example, do you have to pay a fee or are you only allowed to withdraw a certain amount each year?
There are no fees for either a 401K or a Roth IRA. As long as I don't withdraw money too early then I won't be charged with penalty fee's or anything like that.
6. Determine your monthly distribution from both accounts at retirement . Assume these investment choices were made at age 35.
Lets assume I want to distribute the money over 20 years. Thats 240 months and the money I have at the end of retirement is $987,234.32, for both regiment plans.
$987,234.32/240 = $4,113.48
7. Create a monthly budget for your retirement . Lets assume you are retiring at 60 years of age. Answered in entry 26
8. Will you be able to live comfortably based on your lifestyle at retirement. Provide a clear explanation.
If you look at my entry number 26 then you will see that I will have $1,234.53 at the end of each month when I budget everything in. I feel that $1,234.53 is enough to live comfortably each month, for 20 years because , I've already paid everything I had to pay to $1,234.54 is just money that I can spend wherever I would like. I could supersize meals and buy expensive clothes. I would be able to surprise my significant other with treats and presents, and maybe buy a dog or a hedgehog or something that I have always wanted. That , to me, means comfortable living.
9. Provide a bibliography for all your research.
Kitces, Michael E. "The Taxation Of Social Security Benefits As A Marginal Tax Rate Increase? | Kitces.com." Kitcescom. N.p., 27 Mar. 2013. Web. 02 Apr. 2015.
"Life Insurance." – Get a Quote Online. N.p., n.d. Web. 29 Mar. 2015.
Piper, Mike. "How Is Social Security Taxed?" Oblivious Investor. N.p., 13 July 2012. Web. 02 Apr. 2015.
"What Is a 401(k)?" Personal Finance RSS. The Wall Street Journal, n.d. Web. 31 Mar. 2015.
No comments:
Post a Comment