Shopping for Individual Retirement Accounts (IRAs)
MontGuide 200307
Revised 2004
Marsha A. Goetting
MSU Extension Family Economics Specialist
P. O. Box 172800 Montana State University Bozeman, MT 59717 406-994-5695
6 MontGuides
1. Individual Retirement Accounts 2. Shopping for an IRA 3. Withdrawals from IRAs When owner is under 59 ½ When owner is between 59 ½ & 70 ½; turns 70 ½ 4. Inheriting an IRA: Planning techniques Primary beneficiaries Successor beneficiaries
Individual Retirement Accounts
• www.montana.edu
• Search:
• Individual Retirement Accounts
IRA Tax Law Changes
• Economic Growth & Tax Relief Reconciliation Act of 2001
Setting up IRA
• Federal Law: • IRA must be managed by Custodian or trustee
Where to set up IRA?
• Savings Institutions
• Bank • Savings & Loan • Credit Union
Where to set up IRA? • Insurance
Company
• Fixed annuity • Variable annuity
Where to set up IRA?
•
Mutual fund company
Load vs. no load
Where to set up IRA?
• Investment brokers
Self directed Usually at least $10,000 recommended to set up account
Treasury Department
• One-, one-half, onequarter or one-tenth ounce U. S. gold coins • One-ounce silver coins
Shopping for IRA • Worksheet page 3
•
Use institutions’ disclosure sheets to answer IRA • Then compare
$avings for an IRA
Your Choices A
C
B
Which pays the most money? -- Stand up
• 5.80% compounded quarterly • 5.75 % cp monthly • 5.50% cp daily
Annual Effective Yield
• 5.8% compounded
quarterly
5.93%
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
IRA
IRA Savings
• $3,000 / yr 25 years
• 5.93% = $162,980 • 5.65 % = $156,705
$6,275 difference
Question #7
• What is the most popular type of IRA investment & what percentage of IRA holders have it?
Answer: #7
• • • • Mutual Funds Stocks Annuities MMDA, CD 64% 38% 27% 25%
Changing IRA Custodian • Two methods:
Rollover Direct Transfer
Distributions
• Rollover
Owner receives check
Must re-deposit within 60 days with another trustee to qualify
Distributions
• Rollover
Mandatory 20%
withholding tax by custodian if paid to IRA owner
Moving IRA
• Direct Transfer
Check made to custodian Transfer on-line
Shopping for Individual Retirement Accounts (IRAs)
MontGuide 200307
Revised 2004