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
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Money Out: Taxed
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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
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Money Out: Taxed
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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
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Money Out: Tax Free
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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*After 5 years – principal amount can be withdrawn without paying taxes or penalty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 |