2. Even low inflation takes its toll
Value of $50,000 salary adjusted for inflation at 3% per year
$250,000
$219,195
$200,000
$163,102
$150,000
$121,363
$90,306
$100,000
$50,000
$50,000
$0
35 55 65 75 85
Age
3. Social Security is only one part
of the picture
3%
Social Security
18% Earnings
38% Investment income
Pensions
Other
18%
23%
Source: Social Security Administration
4. An early start can make a big difference
$250,000
$218,769
$200,000
$150,000
$148,269
$100,000
$50,000
$0
0 5 10 15 20 25 30
$3,000 invested annually in years 1–10
$3,000 invested annually in years 11–30
This is a hypothetical scenario assuming an 8% annual return and does not represent any particular investment.
5. Contribution limits are rising
Maximum IRA
Maximum IRA
contribution for
Tax year contribution for taxpayers
taxpayers under
age 50 or older1
age 501
2002–2004 $3,000 $3,500
2005 $4,000 $4,500
2006–2007 $4,000 $5,000
2008 and after $5,000 $6,000
1 Investors making less than these limits in annual compensation can contribute up to as much as they earn.
6. Tax advantages increase earning potential
$400,000
$367,038
$350,000
$300,000
$244,067
$250,000
$200,000
$148,269
$150,000
$114,812
$100,000
$41,539 $46,936
$50,000
$0
After 10 years After 20 years After 30 years
Taxable Tax-advantaged
Assumes a fixed rate of return of 8% annually and a 27% tax bracket, with $3,000 annual contributions. It does not
represent any particular investment.
7. IRA options at a glance
Traditional IRA Roth IRA
Deductible contributions that reduce taxable Yes, subject to income No
income limits and other conditions
High income may limit eligibility to contribute No Yes
Tax-advantaged accumulation Yes Yes
Tax-free qualified withdrawals of earnings1 No Yes
Tax-free and penalty-free contribution No Yes
withdrawals at any time
Penalty-free withdrawals for qualified higher Yes Yes
education expenses
Penalty-free withdrawals prior to age 59½ in the
case of death or disability, to meet certain Yes Yes2
deductible medical expenses, or for a first home
purchase (subject to a $10,000 lifetime limit)
Age limit for making contributions Age 70½ None
Required withdrawals after age 70½ Yes No
Withdrawals after age 59½ taxed as Yes No
ordinary income
1 Eligible withdrawals of earnings can be made at attainment of age 59½, and in the case of death or disability or the
purchase of a first home ($10,000 lifetime credit).
2 Amounts not held in the account for at least five years may be taxable.
8. Deductibility of Traditional IRA
contributions for 2002
Married, filing jointly
Spouse doesn’t
Spouse participates in participate in a plan
Single a plan at work at work
You You don’t You You don’t You You don’t
Modified adjusted participate participate participate participate participate participate
gross income in a plan in a plan in a plan in a plan in a plan in a plan
(MAGI) at work at work at work at work at work at work
Less than $34,000 Full Full Full Full Full Full
$34,000 – $43,999 Partial Full Full Full Full Full
$44,000 – $53,999 None Full Full Full Full Full
$54,000 – $63,999 None Full Partial Full Partial Full
$64,000 – $149,999 None Full None Full None Full
$150,000 – $159,999 None Full None Partial None Full
$160,000 or more None Full None None None Full
9. Traditional IRAs for nonworking spouses
for 2002
In cases where: The couple may contribute the lesser of:
The couple’s compensation or $6,000
Neither spouse is age 50 or older ($3000 each)
The couple’s compensation or $6,500
One spouse is age 50 or older ($3,000/$3,500)
The couple’s compensation or $7,000
Both spouses are age 50 or older ($3,500 each)
In some cases, the nonworking spouse may qualify for full or partial deductions:
Working spouse
Working spouse does not participate
Modified adjusted participates in a in a retirement plan
gross income (MAGI) retirement plan at work at work
Less than $54,000 Full deduction Full deduction
$54,000 – $63,999 Partial deduction Full deduction
$64,000 – $149,999 No deduction Full deduction
$150,000 – $159,999 No deduction Partial deduction
$160,000 or more No deduction No deduction
10. Roth IRA vs. a taxable investment
$250,000
$236,863
$200,000
$150,000
$170,331
$100,000
$50,000
$0
35 60 66 72
Age
Growth and withdrawals, Roth IRA
Growth and withdrawals, taxable account
The chart assumes a $3,000 annual investment from age 35 to 60; 8% annual return during both investment and
withdrawal years; a 27% tax bracket; and withdrawals of $2,500 per month beginning at age 60. It does not represent
any particular investment.
11. Roth IRA eligibility and contribution limits
Modified adjusted
gross income (MAGI) Single taxpayer Married, filing jointly
Less than $95,000 Full contribution Full contribution
$95,000 – $109,999 Partial contribution Full contribution
$110,000 – $149,999 No contribution Full contribution
$150,000 – $159,999 No contribution Partial contribution
$160,000 or more No contribution No contribution
12. Roll over retirement contributions
Direct rollover Indirect rollover Cash distribution
$7,500
$10,000
$5,000
$50,000
$40,000
$10,000 $27,500
Amount investor can put to work
20% mandatory tax withholding
10% penalty
Other taxes
13. Go for growth
Growth of $10,000 investment, 9/30/82–9/30/02
$250,000
$119,181
$200,000
$150,000
$100,000
$63,379
$50,000
$33,580
$0
9/82 9/84 9/86 9/88 9/90 9/92 9/94 9/96 9/98 9/00 9/02
Large cap stocks Government bonds Money market securities