401K Basics
What is a Roth IRA
A retirement savings plan offered by employers that allows employees to invest pre-tax earnings.
What does IRA stand for?
Individual Retirement Account
What’s a key difference between a Roth and Traditional IRA?
Contributions to a Roth IRA are made with after-tax dollars, while Traditional IRA contributions are tax-deductible
Name two types of employer-sponsored retirement accounts.
401k and Pension
How much would you need to save monthly to have $1 million by retirement if you have 30 years and expect an average return of 7%?
Around $300 per month.
What is one advantage of a 401(k) over an IRA?
Employers can offer matching contributions in a 401(k)
Who can open a IRA
Anyone with earned income, regardless of whether their employer offers a retirement plan.
Which type of IRA allows for tax-free growth on earnings?
Roth IRA
What’s one benefit of a Traditional IRA?
-You can make more than one.
-Pre Taxed.
-Money invested can lower you gross income.
How does compound interest benefit your retirement savings?
You earn interest on both your initial contributions and the interest that accumulates over time.
True or False: You are taxed on the money you contribute to a 401(k) when you withdraw it in retirement.
True
True or False: You can contribute unlimited amounts to a Traditional IRA.
False
True or False: You can only have one IRA account.
False.
YOU CAN ONLY HAVE 1 ROTH.
You can have multiple Traditional.
How does a Roth 401(k) differ from a Traditional 401(k)?
Contributions to a Roth 401(k) are taxed upfront, but withdrawals in retirement are tax-free.
True or False: You can start withdrawing from your IRA without penalties at age 59 ½.
True
What other action must you take after opening a 401(k)?
You need to choose how to invest the money.
What is one reason someone might choose an IRA over a 401(k)?
If their employer doesn’t offer a 401(k), they can still save for retirement.
Who is the Roth IRA ideal for?
People who expect to be in a higher tax bracket in retirement.
What is a pension?
A retirement plan that pays a fixed monthly amount to retirees, usually based on years of service and salary.
What is the penalty for withdrawing from a retirement account before the age of 59 ½?
A 10% early withdrawal penalty, plus taxes.