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Unit 10 - Retirement Accounts - Coggle Diagram
Unit 10 - Retirement Accounts
Individual retirement accounts (IRAs)
Traditional IRAs
1) Who can contribute?🤵
individuals, not tied to an employer
Tax 📜
1️⃣ Pre-tax (deductible): you put money in before taxes and pay income tax later when withdrawing
Distribution rules👮
RMD required at 73
Roth IRAs
1) Who can contribute?🤵
individuals, not tied to an employer
Tax 📜
2️⃣After-tax (non-deductible) : You put money you've already paid tax on, but withdrawals (if qualified) are tax free
Distribution rules👮
no RMDs during the owner's life, qualified withdrawals tax-free
Employer-Sponsored Plan
s
Defined benefit plan, Traditional Pension plan
1) Who can contribute?🤵
Employer
Tax 📜
Defined Contribution Plans
401k
1) Who can contribute?🤵
Corporate employers
Tax 📜
1️⃣ Pre-tax (deductible): you put money in before taxes and pay income tax later when withdrawing
Distribution rules👮
RMD required at 73
403b
1) Who can contribute?🤵
Non profit and school employers
Tax 📜
1️⃣ Pre-tax (deductible): you put money in before taxes and pay income tax later when withdrawing
Distribution rules👮
RMD required at 73
Special features👍
looks like a 401k but for nonprofits
Profit sharing plans
Tax 📜
1️⃣ Pre-tax (deductible): you put money in before taxes and pay income tax later when withdrawing
Money purchase plans
Tax 📜
1️⃣ Pre-tax (deductible): you put money in before taxes and pay income tax later when withdrawing
Special features👍
employer must contribute a fixed % each year
SIMPLE plans
1) Who can contribute?🤵
small businesses under 100 employees
Tax 📜
1️⃣ Pre-tax (deductible): you put money in before taxes and pay income tax later when withdrawing
Special features👍
easy to set up, employer must contribute (match of fixed %)
Different taxes
Pre-tax contributions (deductible)
You put money in before paying income tax
if salary is $60k, you put $5k in that account, only pay taxes on $55k
Deduction now
Later, when money taken out, you pay income tax on the original contribution and the growth
Tax-deferred Growth
Money grows without paying tax each year
ex: The IRS waits to collect
No taxes on dividends, interest or capital gains while money inside of the account
You pay tax when you withdraw the money
After-tax Contribution
You put money you've already paid income tax on
ex: You earn $60k, put $6k into account, still pay tax on full $60k
No deductions now
no tax when withdraw / the key is what happens during growth
Tax-Free Growth (and Withdrawal)
Specific to the Roth account
ex: You put $6k in a Roth IRA at 25, it grows to $40k by retirement, you can withdraw the $40k with no tax