Retirement Plans Overview

Introduction

• Presenter: Humphrey Yang
• Purpose: Explain different types of retirement plans
• Common plans discussed: 401k, IRA, Roth IRA, Roth 401k, SEP IRA
• Importance of understanding tax implications and contribution methods

Types of Retirement Accounts

1. Traditional 401k

• Earnings grow tax-deferred
  • Pay taxes upon withdrawal (typically after age 59½)
  • Early withdrawal penalty: 10%
• Reduces taxable income for the year
  • Example: Salary $75k, contribute $10k, taxable income = $65k
• Contribution limits (2020): $19,500 ($26,000 if over 50)
• Investment options limited to company offerings
• Tax implications at withdrawal depend on income at retirement age
• Company matching as a benefit
• Required Minimum Distributions (RMDs) start between age 70½ and 72

2. Traditional IRA

• Similar to 401k but self-directed investments
• Lower contribution limits (2020): $6,000 ($7,000 if over 50)

3. Roth 401k and Roth IRA

• Contributions made with after-tax dollars
• Earnings grow tax-free, withdrawals are tax-free
• Roth 401k shares features with traditional 401k (e.g., RMDs, company limitations)
• Contribution limits (2020): Same as traditional 401k
• Roth IRA allows contribution withdrawal at any time without penalty
  • Income limits for contributions (2020):
    • Single: <$139,000
    • Married: <$206,000
• Roth 401k requires 5-year contribution holding for penalty-free withdrawal

4. SEP IRA

• For self-employed individuals/business owners
• Similar to traditional IRA
• Higher contribution limits (2020): $57,000 or 25% of income (whichever is less)

Additional Topics

Rollovers

• From one employer to another, or to an IRA/Roth IRA
• Traditional to Roth requires tax payment on rollover amount
• Platforms include TD Ameritrade, Fidelity, Vanguard, Betterment

403b Plans

• Non-profit equivalent of 401k
• $3,000 additional contribution possible for 15+ years at same employer

Special Situations

• First-time homebuyers can take loans against 401k or withdraw from IRAs without penalties

Conclusion

• Personal preference for Roth IRA due to tax-free growth and early tax payment
• Encouragement to explore further resources and determine personal best fit

• Note: These notes are a summary of key points and not financial advice. Always consult with a financial advisor for personalized guidance.