Question

Angle, age 24 and single, is a recent college graduate. They have just accepted a job offer with Financial Planning Pals, LLC, as a financial planner making $100,000/ yr.    Angle has some student debt and lives in an apartment without any roommates. They have $0 savings currently. Additionally, Financial Planning Pals, LLC is a cheap employer and they do not offer any type of Qualified Retirement Plan.

Angle is confused about how to pay down their student loan debt, establishing an Emergency Fund and beginning to save for their retirement.   Angle did not take FIN CLASS in college and did not pursue a CFP® Designation. Therefore, they have come to you, a planner who has taken FIN CLASS in college and who is working towards their CFP® Designation, for help planning their finances.

1. Provide a short written explanation to Angle illustrating how they can use a ROTH IRA to accomplish their goals.

Answer 1

ROTH IRA:

As information given in above question, Angle, age 24 earning $100,000/year means $100,000 / 12 = $8333.34 per month.

We have to recommend Angle base on ROTH IRA(Individual Retirement Account), to do this we first need to understand what is ROTH IRA: ROTH IRA is established in 1997 and named after William Roth.

ROTH IRA is a special type of retirement account where you have to pay taxes on money when you deposit in the IRA account but after that when you withdraw the money from the IRA you don't have to pay taxes the money grown in your account, whereas in traditional IRA's we have to pay taxes on the money we withdraw from IRA.

The amount that a person can contribute differes by his age, you can maximum contribute $6000 a year if you are 50 or under 50 and you can contribute maximum upto 7000 a year if you are over 50 years of age.

Sources of contribution to the ROTH IRA:

• It can be regular contributions from your income.
• Spousal IRA contributions
• Transfers
• Roll-over contributions
• Conversions.

Sources of Income that don't contribute to ROTH IRA's include:

• Alimony
• Child Support
• Social Security Retirement Benefit
• Unemployment Benefits

How to Start Contributing in a ROTH IRA:

We have to open an account with IRS approved institution which can be Banks, Brokerage Firms etc.

It can be established at any time during taxed year. After opening IRA owner of the account will get two documents related to the IRA which is (1). The IRA Disclosure Statement and (2). The IRA Adoption Agreement and Plan Document.

So this is about ROTH IRA which Angle can use to build emegency fund and also to pay down student loan debt by start contributing to IRA yearly.