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Unformatted text preview: Important Course Activities
The Four Pillars of Investing Chapter 4: The Perfect Portfolio (pages 107126) 107Complete Personal Finance Guidebook (pages 133 Guidebook (pages 133162) 401(k) Interview Assignment Important Course Activities
Each team member will bring their team member will bring their interview questions to class Monday – April 11, 2011 401(k) Interview results due Wednesday Wednesday – April 20, 2011 20 2011 Today is 401(k) and Roth IRA Day! 1 YOUR Retirement Will Be in YOUR Hands What do you need to build a house? Plan Blueprint Material Labor
You need the same things to build a portfolio. 401(k) • Why do you think it came into
being? 401k or 403b
 Section 401k in the US tax code  Employer sponsored plans  As an employee you can elect to contribute a portion of your wages to a plan  Deferred wages are not subject to federal income tax • Is this the end of the retirement
options? Why or Why not? options? Why or Why not? 2 401k or 403b – Cont’d
What are some of the most important aspects of a 401(k)?
 Employer contributions are deductible on the employer’s federal income tax return  Maximum contribution is $16,500 or $22,000 if you are 50 or older  Must pay taxes on earnings TAX SHELTERING!!! RAISES!!! How many different ways does a 401(k) help with your taxes, and what are they? th How many different ways does a 401(k) give you a raise, and what are they? th 2 Lowers taxable income taxable income Shelters earnings 2 Invests untaxed money untaxed money Employer contribution 3 Invests Untaxed Money
How is investing untaxed money a raise?
Monthly pay $4,000 –you are in the 25% tax bracket  your income tax would be $1,000 or $250 per thousand dollars. If you put away $1,000 into your 401(k), then it would not be taxed @ 25% so you saved $250. For 401(k), what is For a 401(k), what is magical magical about being 59 ½ years old and 70 ½ years old?
Class Exercise VIQs • Imagine you just got hired and were told
th that your company has a 401(k) plan. The 401(k) Th HR (human resources) person asks if there is any information that you might want to know about the plan. 401(k)
If you could change just one feature of the 401(k) which one would it be? • What kinds of questions would you have?
Team Exercise 4 Top 6 401k or 403b Mistakes
6. Early withdrawal withdrawal 5. Not contributing 4. Changing jobs and cashing out 3. Too much of one stock “diversification” 2. Trading 1. Investors have no idea what they are doing Roth IRA
 Individual Retirement Account  Senator William Roth of Delaware  200910: Contribution maximum $5,000 *now indexed for inflation*  All earnings are tax free when you or your beneficiary withdraw them Roth IRA – Cont’d
 Contributions to a Roth IRA are not tax deductible  You can only contribute “earned income” into a Roth IRA  Withdrawals are taxfree are tax  Roth IRA does not require distributions based on age 401(k) vs. Roth IRA
NOT TAXED TAXED $$ $$ 401(k) $$$$ $$$ TAXED NOT TAXED Roth IRA $$ $ $$$ $$$ 5 Investment Quiz
Given a set of fraternal twins Sally and George age 20. age 20. – Sally puts $5,000 a year for 15 years into her 401(k) and receives an 8% annual return on her money. For the next 30 years she doesn’t add anymore money to her 401(k). George is lazy and waits until he is 35 when he George is lazy and waits until he is 35 when he realizes that maybe he should be saving and starts saving $5,000 a year for 30 years and gets 8% annual return on his money. Investment Quiz
Who will have the most money? George? Sally? How much of a difference will much of difference will there be?
Class Exercise Compounding Formula
r⎞ ⎛ FA = IA ⎜ 1 + ⎟ ⎝ 100 ⎠ n Final Amount  Ordinary Annuity FA = PPMT {[(1 + r )n – 1] /r}
FA = Final Amount PPMT = Periodic Payment Amount r = Interest rate (decimal) n = Number of periods (usually years) FA = Final Amount IA = Initial Amount Initial Amount r = Interest rate (percent) n = Number of periods (usually years) 6 Assignment
Sally puts in half a much as George, does it for half the time and ends up with $1,366,112 – over twice as much as George George puts in twice as much as Sally for twice as long and ends up with only $566,416  less than half as much as Sally Each team will need to discuss five di fi reasons why their country would make a good investment. Each team will also need to find and share an investing article with the class about their country. 7 ...
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This note was uploaded on 04/19/2011 for the course EE 0822 taught by Professor Lengkeek during the Spring '11 term at Temple.
 Spring '11
 Lengkeek

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