"The Value of a Roth IRA"Introduction
In Chapter 6, students read about IRAs and investing for retirement.
In this lesson, students will read about one form of IRA,
the Roth IRA, and understand why many investors choose to
take advantage of its features. Lesson Description
Students will use information from the Web site Fairmark Press
Tax Guide for Investors to learn about the Roth IRA. They
can browse the site to collect information. Students will
answer four questions. Then they will use the IRA calculator
in the State Farm Insurance Web site to calculate savings
in Roth vs. traditional IRAs if they start saving now and
if they start saving later. They will then summarize their findings in a report. Previous
Knowledge Expected
Individual Retirement Account (IRA): retirement account
in the form of a long-term time deposit, with annual contributions
that are not taxed until withdrawn during retirement (traditional
form) Applied Content Standards (from the National Council on
Economic Education) Standard 10: Institutions evolve in market economies
to help individuals and groups accomplish their goals. Banks,
labor unions, corporations, legal systems, and not-for-profit
organizations are examples of important institutions. A different
kind of institution, clearly defined and well-enforced property
rights, is essential to a market economy. Instructional Objectives - Students will understand the characteristics of a Roth
IRA and the value for saving for retirement.
- Students will understand the value of time and tax-free
growth and the impact each makes upon an investment.
- Students will use what they have learned to calculate the
savings of a Roth IRA compared to the savings of a traditional
IRA. They will also calculate the differences between starting
to save now and starting later. They will summarize their calculations in a report.
Student
Web Activity Answers- The benefit provided exclusively by the Roth IRA is that
if you meet certain requirements, all earnings are tax free
when they are withdrawn.
- Those with modified adjusted gross incomes over $ 110,000,
for single tax filers, $ 160,000, for joint married tax filers,
are prohibited from contributing to a Roth IRA.
- (1) the account has been established for at least five
years, and (2) the IRA owner is at least 59 1/2
years old.
- The four different kinds of IRA providers are banks (including
commercial banks, trust companies, and savings and loans),
Mutual fund companies, brokerage firms, and insurance companies.
Banks allow for small accounts and offer more simple procedures.
Mutual fund companies offer a wide range of investments. Brokerage
firms offer "self-directed" IRAs, which allow you
to make specific investments for your IRA. Insurance companies
are beneficial for people who want to invest their IRAs in
an annuity, or who are interested in an investment offered
specifically by the insurance company.
- Students' results will vary, but should show how the impact
of taxes upon the traditional IRA lowers its net value to
the owner.
- Students will note that when saving is postponed until
the age of 30, the IRA's value is drastically lowered.
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