Account Types 101

Retail

 

Money In: Not Tax Deductible

 

Example:

Ø If you earn 25k

Ø Contribute 5k

Ø Taxable Income 25k

-------------------------------------------

 

During: Not Tax Deferred

 

-------------------------------------------

 

Money Out: Taxed

 

-------------------------------------------

 

Bought XYZ stock for $100

Sold XYZ stock for $200

Capital gain (profit) $100

 

*Must report $100 capital gain on taxes

 

Bought XYZ stock for $100

Sold XYZ stock for $75

Capital loss $25

 

*Must report $25 capital loss on taxes

Traditional IRA

 

Money In: Tax Deductible

 

Example:

Ø If you earn 25k

Ø Contribute 5k

Ø Taxable Income 20k

-------------------------------------------

 

During: Tax Deferred

 

-------------------------------------------

 

Money Out: Taxed

 

-------------------------------------------

 

Withdrawal B4 age 59 ½

Ø Must pay taxes on withdrawal

Ø Plus 10% tax penalty

 

*Some exceptions may apply

Roth IRA

 

Money In: Not Tax Deductible

Example:

Ø If you earn 25k

Ø Contribute 5k

Ø Taxable Income 25k

-------------------------------------------

 

During: Tax Deferred

 

-------------------------------------------

 

Money Out: Tax Free

 

-------------------------------------------

 

Withdrawal B4 age 59 ½

Ø Must pay taxes on gains

Ø 10% tax penalty on principal

 

*After 5 years – principal amount can be withdrawn without paying taxes or penalty

 

Example:

Ø 1/1/10 contribution 5k

Ø Growth 2.5k

Ø 1/1/15 value 7.5k

 

*Can take out 5k, must leave growth or pay 10% penalty