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FIN 3030 > Retirement & Savings Plans > Flashcards

Retirement & Savings Plans Flashcards

1
Q

How much money do you need to retire?

A

For each year of retirement, plan to live off of 8% of your total nest egg and continue to invest in the rest.

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2
Q

What do winners do?

A

Think long term

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3
Q

What is a sign of maturity?

A

Learning to delay pleasure

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4
Q

What percent of all workers have less than $25,000 in a retirement plan?

A

53%

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5
Q

What is baby step #1?

A

Save $1,000

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6
Q

What is baby step #2?

A

Pay off all debt

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7
Q

What is baby step #3?

A

Create an emergency fund with 3-6 months of expenses

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8
Q

What is baby step #4?

A

Invest 15% in Roth IRAs, pre-taxed or tax-favored investments

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9
Q

What is a Qualified Plan?

A

Anything that is tax-favored

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10
Q

What is a Roth IRA?

A

An after-tax Individual Retirement Arrangement that allows your money to grow tax free

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11
Q

Where did 401K come from?

A

section 401, subsection K in tax code

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12
Q

Where did 401B come from?

A

section 403, subsection B in tax code

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13
Q

Who is eligible for an IRA?

A

Anyone who has an earned income or is married to someone who has an earned income

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14
Q

Who is not eligible for an IRA?

A

People who live off of social security income, disability income, interest income, etc

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15
Q

What is the maximum contribution to an IRA?

A

$5,000

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16
Q

What is an IRA used for?

A

An IRA is not an investment. It protects the investments within it from taxes

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17
Q

What is the Roth IRA?

A

An after-tax investment that allows your money to grow tax free

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18
Q

How does a Roth IRA differ from an IRA?

A

It is an investment

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19
Q

When do you pay taxes on a traditional IRA?

A

When you take it out

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20
Q

When do you pay taxes on 401K?

A

When you take it out

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21
Q

How much in taxes should you expect to pay in taxes on a traditional IRA or 401K?

A

About 25%

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22
Q

True or False: You could have more income at retirement than while working.

A

True

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23
Q

What are the benefits of a Roth IRA?

A
  1. It forces you to invest more because of taxes
  2. More flexible
  3. Able to withdraw 100% after 59.5 years old, death or disability
  4. Able to withdraw up to $10,000 to for a 1st-time home purchase
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24
Q

How do Americans who make less than $35,000 a year plan to retire?

A

40% said the best way to have enough money is to win the lottery

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25
Q

What is the SEPP?

A

Simple Employee Pension Plan (IRA)

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26
Q

Who is eligible for SEPP?

A

Self-employed earners

27
Q

How much can you put into a SEPP?

A

15% (really 13.8%)

28
Q

What is the max contribution for SEPP?

A

$45,000

29
Q

Who does the SEPP benefit most?

A

Small business owners with very few employees, or very few employees who stay long-term

30
Q

Who receives a 100% match with SEPP?

A

Employees that have been with you for at least 3 of the last 5 years

31
Q

What percentage of pension plans closed in the 1980s?

A

60%, almost all were replaced with a 401K

32
Q

How does a 401K from a pension plan?

A

A 401K belongs to you while a pension plan is an asset of the company.

33
Q

What is a Roth 401K?

A

It grows tax free and the employer matches with pre-tax dollars

34
Q

What is a 401K?

A

A corporate arrangement in which money is taken directly from your paycheck and becomes a tax-favored investment. 1) Money cannot be taken out with huge penalties and taxes before you’re 59 1/2. 2) Money cannot be taken out at all while you work for that company.

35
Q

What is a 403B?

A

Similar to a 401K for employees in hospitals, non-profits, school systems

36
Q

How does a 403B differ from a 401K?

A

1) Investments may not be good 2) You can take money out while still employed there and put it into an IRA.

37
Q

What is a 457?

A

Acts similar to a 401K but is deferred compensation. Money cannot invested. If you put in $10,000, then you will receive $10,000 when you leave plus taxes incurred. Money does not grow.

38
Q

What is a GIC?

A

Guaranteed Investment Contract; similar to a CD in that it has a very low interest rate

39
Q

Should you always roll retirement income to an IRA when you leave a company?

A

Yes and make it a direct transfer

40
Q

Are taxes due when transfer money from a 401K/403B to an IRA?

A

No

41
Q

What happens if you do not do a direct transfer of retirement income?

A

You have to pay taxes (20%) and then put the pre-withdrawal amount into the IRA within 60 days
e.g. If you had $100,000 and took it home, then you lose $20,000 to taxes and then you still have to put $100,000 into the IRA

42
Q

When would you do a rollover to a Roth IRA rather than a traditional IRA?

A

When you can pay taxes out of pocket

43
Q

Should you borrow against your 401K?

A

No

44
Q

What is a thrift plan?

A

A federal plan for federal employees?

45
Q

What is the C fund?

A

The Common Stock Fund; a growth-stock mutual fund with 8-12% return

46
Q

How much should you put into a C fund?

A

60%

47
Q

What is a S fund?

A

Small Company Stock fund; aggressive growth stock mutual fund with 9-12% return

48
Q

How much should you put into a S fund?

A

20%

49
Q

How much should you put into an I fund?

A

20%

50
Q

What is an I fund?

A

An International Fund

51
Q

Where is the first place you should invest your money if your employer offers 401K or 403B and matches?

A

401K or 403B at max contribution of your employer’s match percentage

52
Q

What is the most popular match for 401K or 403B?

A

3%

53
Q

What percentage of companies match a 401K or 403B?

A

75-76%

54
Q

Where is the second place you should invest your money?

A

Roth IRA if you make less than $150,000 a year and are married filing jointly

55
Q

Where is the last place you should invest your money?

A

Non-matched investments until you reach 15%

56
Q

Should you invest more than 15%?

A

Not necessarily because there are other expenses

57
Q

Why shouldn’t someone rely on social security?

A

It is our responsibility to take care of ourselves. We do not know where the national economy will be when we retire.

58
Q

How does social security work?

A

The original concept was not to be a retire plan. It was designed to a be supplement only to good savings plans.

59
Q

Can you live off of social security?

A

No

60
Q

What does social security actually do?

A

Take your money and give it to a retiree

61
Q

What was social security meant to do?

A

Take your money and set it aside for when you retire

62
Q

How many Americans live paycheck to paycheck?

A

78%

63
Q

What is the average household income?

A

$40,000

FIN 3030 (9 decks)

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