Shopping for IRAs

Shopping for Individual Retirement Accounts(IRAs)MontGuide 200307Revised 2004Marsha A. GoettingMSU Extension Family Economics SpecialistP. O. Box 172800Montana State UniversityBozeman, MT 59717406-994-56956 MontGuides1.Individual Retirement Accounts2.Shopping for an IRA3.Withdrawals from IRAsWhen owner is under 59 ½When owner is between 59 ½ & 70 ½; turns 70 ½4.Inheriting an IRA: Planning techniquesPrimary beneficiariesSuccessor beneficiariesIndividual Retirement Accounts•www.montana.edu•Search:•Individual Retirement AccountsIRA Tax Law Changes•Economic Growth & Tax Relief Reconciliation Act of 2001Setting up IRA •Federal Law:•IRA must be managed by Custodian or trusteeWhere to set up IRA?•Savings Institutions•Bank•Savings & Loan•Credit UnionWhere to set up IRA? •Insurance Company•Fixed annuity•Variable annuityWhere to set up IRA?•Mutual fundcompanyLoad vs. no loadWhere to set up IRA?•Investment brokersSelf directedUsually at least $10,000 recommended to set up accountTreasury Department•One-, one-half, one-quarter or one-tenth ounce U. S. gold coins•One-ounce silver coins Shopping for IRA•Worksheet page 3•Use institutions’ disclosure sheets to answer•Then compareIRA$avings for an IRAYour ChoicesABCWhich pays the most money? --Stand up•5.80% compounded quarterly•5.75 % cp monthly•5.50% cp dailyAnnual Effective Yield•5.8% compounded quarterly5.93%Annual Effective Yield•5.75% compounded monthly = 5.90%Annual Effective Yield•5.5% compounded daily =5.65%Which account pays most?•5.8 % cp quarterly = 5.93•5.75 % cp monthly = 5.90•5.5 % cp daily = 5.65 IRAIRA Savings•$3,000 /yr 25 years•5.93% = $162,980•5.65 % = $156,705 $6,275 differenceQuestion #7•What is the most popular type of IRA investment & what percentage of IRA holders have it?Answer: #7•Mutual Funds 64%•Stocks38%•Annuities27%•MMDA, CD 25%Changing IRA Custodian•Two methods:RolloverDirect TransferDistributions•RolloverOwner receives checkMust re-deposit within 60 days with another trustee to qualifyDistributions•RolloverMandatory 20% withholding tax by custodian if paid to IRA ownerMoving IRA•Direct TransferCheck made to custodianTransfer on-line Shopping for Individual Retirement Accounts(IRAs)MontGuide 200307Revised 2004