University:
Frostburg State University
Course:
ACCT 101 | Life Skills For Money Management
Academic year:

2023
Views:

32

Pages:

2
Author:

armiugavixw

COMPARE: Types of Retirement Accounts Part I - Distinguishing features of retirement accounts In the chart below, the first column contains a statement. Mark an X in each type of retirement account for which the statement is true. If the statement doesn't apply to that type of retirement account, leave the box empty. To help you complete the chart, read and watch these videos on types of retirement accounts: Factor Pension Traditio nal 401(k) Traditio nal IRA Roth IRA X X X Eligibility Nothing about the account changes, even if you switch jobs Eligibility may be affected by how long you work with a given company X All employers offer this type of account X Taxes The money you put into this retirement account has already had taxes taken out of it You pay taxes when you eventually take the money out X X X X X X Contributions Your company may contribute funds toward your retirement Any contributions you make come directly from your paycheck X You make contributions from your bank account Factor Pension Traditio nal 401(k) X X X X Traditio nal IRA Roth IRA X X Investment Options Your employer has some say in how the money is invested You have some choice in how your contributions are invested X Receiving Your Benefits 1 Your total retirement benefit will depend on the risk level of the investments you chose You’re promised a fixed benefit each month, which may increase with inflation X X X Part II - A few more questions Answer the following questions, based on what you’ve learned. 1. Your friend Jenny says a Roth IRA has the best tax advantages, because you pay taxes now and won’t have to pay them when you take the money out in retirement. Why might she be right? Jenny is right that the Roth IRA has the best tax advantages, this is an account to save money for future retirement and they do not have to worry about the tax deduction. 2. Your friend Jomaine says a Traditional IRA or 401(k) has the best tax advantages because you don’t pay any taxes now, and you can wait until you retire to pay taxes. Why might he be right? Jomaine is also right that the Traditional IRA or a 401(k) has the best tax advantages, the contributions to this type of retirement account is known as pre-tax and can lower your overall taxable income. 3. Your friend Sonia says pensions and 401(k)s are the best retirement options because they offer you “free money.” What does she mean by this? Does she have a good point? Why or why not? She means that it is made with pre-tax dollars and the money is not taxed until taken out within retirement. Or she is talking about the ability for an employer to match your contribution to your 401(k) to a certain amount. She does have a good point that if your employer has the 401(k) matching program than it is basically like earning free money. Other than that pensions are more protected by the companies while the 401(k) is more in your control, that is something to keep in mind. 4. If your friend Raheem asks you, “What type of account should I use to save for retirement,” what would you tell him? I would tell Raheem that he should get a 401(k) The benefit of the possibility of employer matching programs There is more control in your hands directly of what money goes into this savings Compound interest – the more money there – the more interest can be earned on top of that money (grows while you wait) 2

Types of Retirement Accounts Lab

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