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 Roth IRA Web Site Home Page 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 Web site to calculate savings in Roth vs. traditional IRAs if they start saving now and if they start saving later. They will then create bar graphs of their results and share them with the class.

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(IRA): retirement account in the form of a long-term time deposit, with annual contributions that are not taxed until withdrawn during retirement (traditional form)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
1. Students will understand the characteristics of a Roth IRA and the value for saving for retirement.
2. Students will understand the value of time and tax-free growth and the impact each makes upon an investment.
3. 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 then create bar graphs of their calculations and share them with the class.

Student Web Activity Answers
1. Once the Roth is set up, investments can include stock, bonds, or mutual funds (through brokers) and certificates of deposit (through banks and credit unions).
2. Those with an adjusted gross income (AGI) over $100,000 (regardless of whether filing joint or single), or who file married but separate are not able to convert their IRAs. Those with AGI's over $110,000 for single tax filers and $160,000 for joint married tax filers are prohibited from contributing to a Roth IRA.
3. (1) the account has been established for at least five years, and (2) the IRA owner is at least 59 1/2 years old, is disabled or has died, or is using the distribution in a manner that meets the "first time home purchase" exception under new IRC Section 72(t)(2)(F).
4. For a Roth: contributions are non-deductible; however, distributions would be tax-free and/or penalty-free; contributions can be made after the age of 70½ provided one has earned income; it can provide tax shelter to those over the age of 70 1/2 who still have earned income; contribution basis can be removed at anytime tax-free; in some cases, the IRA can be transferred to beneficiaries tax-free; up to $10,000 of the funds in a Roth IRA can be used to buy a first home tax and penalty-free as long as they were held in the Roth for at least five years; funds used for college expenses, for yourself or immediate family, will be penalty-free; there are no required distributions
5. Students' graphs will vary, but should show how the impact of taxes upon the traditional IRA lowers its net value to the owner.
6. Students will note that when saving is postponed until the age of 30, the IRA's value is drastically lowered.

Go To Student Web Activity