Potsdam Fixed Annuity Case Study
1. Stop Funding of Potsdam Fixed Annuity
Mia should stop funding her Potsdam fixed annuity. While there is no penalty for stopping contributions to the account, the amount available for distribution in retirement will be reduced. Contributions to this account are not tax deductible and distributions will be taxed as ordinary income although earnings grow tax-deferred.
These funds should be used to fund a Roth IRA as diversified below. While a Roth IRA is funded with after-tax dollars, distributions from a Roth IRA will not incur any tax consequences. In addition, the Roth IRA will allow you to achieve a greater rate of return over the Potsdam fixed annuity. To achieve a return that meets your needs of a moderately conservative portfolio,
I suggest investing in the following funds. How much will they be able to accumulate if they do this? How much do they currently put into the Potsdam account (use $$ figures so they can see hard numbers)? Do they need to increase their retirement savings contribution? How much can they put into a Roth each year and will they have to exceed that amount in order to achieve their savings goal? Where else might they want to consider contributing if they hit the maximum contribution limit?
Mia should stop funding her Potsdam fixed annuity. While there is no penalty for stopping contributions to the account, the amount available for distribution in retirement will be reduced. Contributions to this account are not tax deductible and distributions will be taxed as ordinary income although earnings grow tax-deferred.
These funds should be used to fund a Roth IRA as diversified below. While a Roth IRA is funded with after-tax dollars, distributions from a Roth IRA will not incur any tax consequences. In addition, the Roth IRA will allow you to achieve a greater rate of return over the Potsdam fixed annuity. To achieve a return that meets your needs of a moderately conservative portfolio,
I suggest investing in the following funds. How much will they be able to accumulate if they do this? How much do they currently put into the Potsdam account (use $$ figures so they can see hard numbers)? Do they need to increase their retirement savings contribution? How much can they put into a Roth each year and will they have to exceed that amount in order to achieve their savings goal? Where else might they want to consider contributing if they hit the maximum contribution limit?