Build a retirement fund

Afford child’s education

Do NOT rely on Social Security for your retirement

Interest that is building on money in the account (year over year)

$10,000 in account first year- with 10% interest- $1000 is earned

Second year, the interest rate would be on $11,000 instead of $10,000- then 10% of $11,000 is $1100

After two years- investment is now $12,100

Money deposited in your first few years will be the hardest working money in your whole portfolio.

How much do you need to retire?Look at your lifestyle and figure out what you need to enjoy your life as you get older

Could you live on $20,000 a year, or would you be happy with $50,000 a year?

$100,000 will give you between $7,000 and $10,000 per year when you retire. You will not be able to live off of this amount.

People have not saved enough money for retirement, plus the U.S. is getting older.

Two types of plans:

Defined Benefit

Defined Contribution

Pension plan in which the amount of benefits paid to an employee after retirement is fixed in advance in accordance with a formula given in the plan

Traditional pensionOld GM is an example

Sum of money paid regularly as a retirement benefit

Money paid under given conditions to a person following retirement or to surviving dependents

A certain amount or percentage of money is set aside each year (by either the company and/or the employee) for the benefit of the employee

Restrictions as to when and how you can withdraw these funds without penalties

Employer commits to contributing to your retirement

401 (k) is the most frequent typeEmployers will match your contribution up to a certain % (usually 3-5%)

Money is taxed when you withdraw it at retirement

Funded through pre-tax payroll deductions

Funds can be invested in a number of different stocks, bonds, mutual funds or other assets

It gets it name through the IRS code that describes it: Section 401 (k)

Government determines the maximum you can contribute each year (2013 is $17,500)

Contribute at least as much as what your employer will match (try to get as close as possible to the maximum permitted)

If your company says it will match 50% of your first 6% you contribute (means they will contribute 3% of total salary), you must be willing to contribute a minimum of 6% of your salary to get that

When you can remove money from your account

With your 401 (k) you are 100% vested in your own contribution from Day 1

It is your money and it cannot be taken away from you at that point

StepCliff

Step: Example- After first year of working- you are entitled to 20% of what the company has put in. After second year, you are entitled to 40% of what your company has put in, and so on (this shows a 5 year step vesting schedule).

Cliff: 0% until you get 100%Example- you must stay five years before you are entitled to the company’s match (realize you can always get out what YOU have put in, just not what your company has contributed)

If you withdraw from your 401 (k) before you are 59 ½, you are subject to the regular tax on the amount of the withdrawal- PLUS a 10% penalty tax on anything you withdraw

YES! It doesn’t mean that you should do this, but there are hardship withdrawal exceptions

If you qualify for a hardship withdrawal exception, there is only tax on the withdrawal amount instead of also having the additional 10% penalty tax.

To buy a primary residenceTo prevent foreclosure or eviction from your home

To pay college tuition for yourself or a dependent, provided the tuition is due within the next 12 months

To pay unreimbursed medical expenses for you or your dependents

Allows investors to make tax-deductible contributions

Money can be invested in stocks, bonds, mutual funds

Earnings grow tax-free until account’s owner turns 59 ½

Account holder is allowed to withdraw money at that time

Withdrawals are treated as ordinary income and will be taxed at that time.

Has a low contribution limit- 2013 it is $5500

Allows investors who do not exceed a specific income level to contribute a limited amount of money toward retirement annually.

Taxed fully on amounts contributed

Not taxed at all on withdrawals or earnings

Account must be 5 years old and owner of account must be 591/2, or can withdraw $10,000 for a first home

529 College Savings PlanCoverdell (Education) IRA’s

Pool of money invested in various investment vehicles

Primary investment option in 401 (k)’s, IRA’s, 529’s

Offers diversification (decreased risk) at an affordable price