Chapter 6: Saving and Investing
"The Value of a Roth IRA"
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.
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.
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that are not taxed until withdrawn during retirement (traditional
Applied Content Standards (from the National Council on
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.
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.
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
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