Question

11/21/2019 Aplia: Student Question < Back to Assignment Attempts Keep the Highest: /5 7. Spending retirement funds Now It's Finally Time to Start Spending My Retirement Nest Egg Not so fast! People work long and hard for years on their retirement plans. Paying smart attention to the plans doesn't stop when it's time to enjoy the fruits of the labor and sacrifice. When it comes time for you to begin using your funds, you'll need to make sure you follow some rules in order to avoid unnecessary expenses. Some questions follow that will help you remember wise ways to manage your money as well as avoid pitfalls that could cost you. Keeping in mind that the primary purpose of tax-sheltered plans is to provide for your retirement, there are regulations in place to discourage early withdrawals, which presumably are intended for uses other than funding your retirement. That discouragement comes in the form of paying penalties and some taxes for which you would not otherwise be liable. However, there are some withdrawals allowed that wouldn't require you to pay penalties, as long as certain qualifications are satisfied. What are some of these penalty-free withdrawals? Check all that apply. Early retirement Home renovation Pay down debt College expenses Account loan Medical expenses It can be costly to spend your funds before the retirement rules allow if, for any reason, that spending doesn't fall into the narrow range of penalty- free early withdrawals. The farther away you are from retirement age, the cost that will most likely have the greatest negative impact is the Alex arranged for a lump sum distribution from his employer-sponsored plan of $350,000. The entire amount was transferred to another account. What arrangement would not allow for this transfer? Rollover IRA Direct deposit into Alex's spouse's checking account Trustee-to-trustee rollover Ali is finally ready to retire with a nest egg of $500,000. He wants his money to last 25 years and, taking inflation into consideration, expects the balance in his nest egg to earn 3% per year. Use the following interest table to compute how much Ali could withdraw per year before his money ran out. Round your answer to the nearest dollar. https://ng.cengage.com/static/nb/ui/eva/index.html?deploymentid=590477187515174748174591528&elSBN=9780357 128633&id=553184777&snaps... 1/2

Answer 1

!)Early Retirement-Some individual can retire before 55 , in their early 50's, then one is able to manage to access to funds without penalty.

ii)Home repairs/renovation.

iii)College expenses.

iv)Medical expenses.

v)Accounting loan-the amount one can borrow is limited by IRS to 50% of the balance up to $50000. IRS needs yOu to repay the loan within 5 years and payment towards the interest and principal of the loan.

The greatest negative impact is one will be left with very less money at their retirement age also one has to forego the tax advantages on the retirement savings.Tax free growth -no taxes levied on the dividends or capital gains that the investments earn.

1Direct deposit into the spouses's checking account.-Alex can transfer the money to his wife in case of divorce settlement

Trustee-to-trustee transfer- funds move directly from one ira to another without the client's touching their money, but the account should be of the same type.Since alex received the money he cant transfer to another account under this arrangement.

Rollover IRA-Is a transfer of funds from a retirement account into a traditional IRA or ROTH IRA.

Present value of annuity for 3% for 25 years=17.4131.

Present value =500,000

Annuity=500000*(17.4131)=$28714 every year he can withdraw.

He has to try to find plan which gives more interest than retirement plan, or if he knows where he gets better annuity than $28714 he can explore that option too.

Withdrawing less may not be the option as he would have thought carefully and planned the amount required needed during retirement. Get a part time job -if he is able to work and is in good health condition then he can opt for this too.