4 Investment Accounts You Need to Have

What investment accounts are available for me?  What are the tax consequences of investing?  Planning your investments to build a retirement fund can be a dizzying prospect. The various questions, options, details, accounts, and amounts are enough to make anyone’s head spin. It is important to work with an investment coach that can understand your specific needs.

Below are a few basics and suggestions on some options available to most people.

1. Fulfill Your Company’s Match Program: If you work for an employer that has a retirement plan option, this is a must.  Most companies, even small companies, offer some sort of retirement account.  Smaller companies usually have simple IRA’s or SEP IRA’s, while larger companies usually have 401k’s.  There is a high likelihood that your company has a match program as part of their plan.  This means that for each contribution you make into your account, the company will match it up to a certain amount.  So match programs offer an instant 100% return on the money invested.   Before you invest anywhere else, make sure you are investing enough in your work retirement plan to get your full match.

Warning!  If you don’t plan on working for the company long term, make sure you check out the vesting schedule.  A lot of company retirement plans don’t give you full access to the employer contributions unless you work there for a 3 to 5 years.

2. IRA to the Max: An IRA is an individual retirement account that can be opened by anyone seeking to invest.  Investing in an IRA usually gives you more investment choices and flexibility than is offered in many 401k plans.   Also, you have the Roth option.  There has been a long standing battle between the Traditional IRA’s and the Roth IRA’s. When it comes to your retirement planning, your Roth IRA should win this battle in most cases. There are a few different reasons why you should make this move. Investing in a Roth allows you to pay taxes on your income now, and avoid the higher tax rate as it grows in your retirement.  The total taxes paid with a Roth IRA from opening of account to death and beyond are almost always less than with a Traditional IRA.

Who’s eligible?  Even if you have a retirement plan at work you are eligible to contribute to a Roth IRA.

Another thing to consider if you are married is opening a Roth IRA for your spouse.  Even if they are not working you can contribute to their Roth IRA and max it out as well.

3. Open Taxable (Non-Qualified) Accounts: If you have maxed out your company plan and an IRA for your and your spouse, congratulations, you are doing very well in the retirement planning side of things.  But what if you still want to put more money away?  There are still options.   You can still invest more money in a non-qualified account.  If you are married this would be a joint account, and for the singles it is a personal account. There are a few advantages and disadvantages of this type of account.  This is not a tax sheltered account, so there is no taxable advantage.

One big advantage.  There is no tax penalty or fee for taking the money out at any age for any reason.  For that reason a lot of people use this account as an emergency fund, or in any case where they want extra flexibility.

4. Education Planning:  If you have kids, you need to think about saving money for their future, especially their college expenses.  There are Education Savings Accounts, and other ways and means of doing this that are advantageous for tax purposes.

 
There is a lot of things to know, and I haven’t even gotten into life insurance and that side of the retirement planning.   Like I mentioned before, there is a reason that no one has created a perfect plan that fits everyone. Depending on your personal income, you might not be eligible for certain accounts, like a Roth IRA.  But, for most people, these four steps are a great place to start.

By Jimmy Hancock



College Savings Piggy Bank. Digital image. Flickr. N.p., n.d. Web. 27 June 2017.

Investment Accounts 101

investing choicesPlanning your investments to build a retirement fund can be a dizzying prospect. The various questions, options, details, accounts, and amounts are enough to make anyone’s head spin. Wouldn’t it be nice if there was a generic recipe for success? A nice neat list of step by step instructions on how to make the best decisions on where, when, and how much when it comes to investing for your retirement? Unfortunately, this list of steps is incredibly dependent upon each individual and their current situation and future plans, so a sure fire success route does not exist.  This is why it is important to work with an investment coach that can understand your specific needs.

But before you stop reading, there are a few things that we feel you should know about that will lead you down the right path.  Here’s the order that is suggested for the majority of people in terms of what retirement accounts to invest in.

1. Fulfill Your Company’s Match Program: Most companies, even small companies, offer some sort of retirement account.  Smaller companies usually have simple IRA’s or SEP IRA’s, while larger companies usually have 401k’s.  There is a high likelihood that your company has a match program as part of their plan.  This means that for each contribution you make into your account, the company will match it up to a certain amount.  So match programs offer an instant 100% return on the money invested.   Before you invest anywhere else, make sure you are investing enough in your work retirement plan to get your full match.

Before we move on, here is word of warning on the company retirement plan.  If you don’t plan on working for the company long term, make sure you check out the vesting schedule.  A lot of company retirement plans don’t give you full access to your money unless you work there for a few years.

2. IRA to the Max: An IRA is an individual retirement account that can be opened by anyone seeking to invest.  Investing in an IRA usually gives you more investment choices and flexibility than is offered in many 401k plans.   Also, you have the Roth option.  There has been a long standing battle between the Traditional IRA’s and the Roth IRA’s. When it comes to your retirement planning, your Roth IRA should win this battle in most cases. There are a few different reasons why you should make this move. Investing in a Roth allows you to pay taxes on your income now, and avoid the higher tax rate as it grows in your retirement.  The total taxes paid with a Roth IRA from opening of account to death and beyond are almost always less than with a Traditional IRA.

Another thing to consider if you are married is opening an IRA for your spouse.  Even if they are not working you can contribute to their IRA and max it out as well.

3. Company Retirement Plan to the Max: After you have reached your company’s matching level and have maxed out your IRA or Roth IRA, turn your funds back to the company retirement plan until they are maxed out as well. Having both your Roth IRA and your  company retirement plan maxed out gives you some variety in your portfolio in terms of how the investments are taxed. This variety gives you something of a safety net in terms of how taxes and other investments change over time and the affect they will have on your funds.

4. Open Taxable (Non-Qualified) Accounts: If you have maxed out your company plan and an IRA for your and your spouse, congratulations, you are doing very well in the retirement planning side of things.  But what if you still want to put more money away?  There are still options.   You can still invest more money in a non-qualified account.  If you are married this would be a joint account, and for the singles it is a personal account. There are a few advantages and disadvantages of this type of account.  This is not a tax sheltered account, so there is no taxable advantage.  But one big advantage is there is no tax penalty or fee for taking the money out at any age for any reason.  For that reason a lot of people use this account as an emergency fund.
This plan is not something to jump into without doing your homework. There is a lot of things to know, and I haven’t even gotten into life insurance and that side of the retirement planning.   Like I mentioned before, there is a reason that no one has created a perfect plan that fits everyone. Depending on your personal income, you might not be eligible for certain accounts, like a Roth IRA.  But, for most people, looking for a general order of priority for their retirement investments, these four steps are a great place to start.

By Jimmy Hancock

Tax Time IRA Answers

versesLet’s take down the age old question of “Should I invest in a Roth IRA or a Traditional IRA?”   Before I jump into this, you must know that neither one is a bad choice, and it all depends on your situation and goals.  Both accounts are considered “Qualified Accounts”, meaning they have tax advantages over a non qualified investment accounts.

Traditional IRA

Summary- A traditional IRA allows you to take the tax advantage in the year that you make contributions to the account.  It is used by people that need to lower their taxes now, and also by people who are in higher tax brackets.

Pro’s

  • – You get to write off your contributions you make each tax year from your Income.
  • – If you are not covered by a retirement plan at work, the income limit does not exist.  Meaning you can write off contributions no matter how much you make.

Con’s

  • – When you take the money out in retirement, you pay the full taxes on not only the money you put in, but the growth as well. (Assuming there is growth)
  • – You are required to take the money out and pay taxes beginning at age 70 1/2, this is called a Required Minimum Distribution.
  • – If you have a retirement plan at your work, you cannot write off contributions if your Adjusted Gross Income is more than $95,000.

 

Roth IRA

Summary- A Roth IRA allows you no advantage in the year of the contribution, but the money you take out in retirement or after death is completely tax free.   It is used by people with lower current tax rates and by those wanting tax free money in retirement or as an inheritance for their children/spouse.

Pro’s

  • – You get all of your money that you contributed plus all the growth of the account completely tax free after the age of 59 1/2.
  • – If you die, the money goes tax free to your beneficiaries.
  • – You have the option  of withdrawing up to the total of all your contributions made tax free at any age.

Con’s

  • – Your contributions do not lower your Adjusted Gross Income in the year contributed.
  • – If you make more than $191,000 as married filing jointly you cannot contribute to a Roth IRA.  ($129,000 for single or head of household)

 

Things to Consider

  • – You can open as many Roth IRA’s and Traditional IRA’s as you want, but be weary of annual fees.
  • – If your income is below $36,000 (Married Filing Jointly) then you probably qualify for the Retirement Savings Credit, which gives you up to 50% of your total contributions in the form of a tax credit.
  • – If you are married and your spouse is not working, you can contribute up to $5500 to an account for each of you for a total of $11,000 of tax advantaged investments for the year.
  • – If you believe your current tax bracket is significantly higher than it will be when you take the money out, then you should probably consider a traditional IRA.

The most important part of the decision should be your goals and priorities.  A Roth IRA will give you more long term assurance of tax free wealth, while a traditional IRA will help you to dodge big tax bills in the short term.   Also know that you have the option of having both a Roth and a Traditional IRA, and contributing to both each year.  It doesn’t have to be one or the other.

By Jimmy Hancock

 

Reference

IRS. “Retirement Topics – IRA Contribution Limits.” Retirement Topics – IRA Contribution Limits. IRS, 18 Feb. 2014. Web. 03 Aug. 2014. <http://www.irs.gov/Retirement-Plans/Plan-Participant%2C-Employee/Retirement-Topics-IRA-Contribution-Limits>.

 

Retirement Planning Basics: Investment Accounts

retirePlanning your investments to build a retirement fund can be a dizzying prospect. The various questions and options and details and accounts and amounts are enough to make anyone’s head spin. Wouldn’t it be nice if there was a generic recipe for success? A nice neat list of step by step instructions on how to make the best decisions on where, when and how much when it comes to investing for your retirement. Unfortunately, this list of steps is incredibly dependent upon each individual and their current situation and future plans, so a sure fire success route doesn’t exist.

But before you stop reading, there are a few broad steps that most financial professionals agree will most likely lead you down the right path. By investing your money in retirement accounts by the priority of which will give you the most return, you can take advantage of what each has to offer. Here’s the order that is suggested for the majority of people in terms of retirement accounts.

1. Fulfill Your Company’s Match Program: The exact amount of this will differ for each individual depending on the company that they work with, but whether you have a 401K or a 403b, the best place for your money is in those accounts reaping the assistance of your employer. Match programs offer a two for one that is too valuable to turn down. Before you invest anywhere else, make sure you are investing enough in your 401k or 403b to get your full match.

2. IRA to the Max: There has been a long standing battle between the Traditional IRA’s and the Roth IRA’s. When it comes to your retirement planning, your Roth IRA should win this battle. There are a few different reasons why you should make this move. Investing in a Roth allows you to pay taxes on your income now, and avoid the higher tax rate as it grows in your retirement. Also, investing in an IRA gives you more choices and flexibility than is offered in many 401k plans. You can decide where you want to open your account based on your personal preference or individual situation. This step of maxing out a Roth IRA can change based on the individual though, as some people cannot open a Roth IRA because of their income level.

3. 401k or 403b to the Max: After you have reached your company’s matching level and have maxed out your Roth IRA, turn your funds back to the 401k or 403b until they are maxed out as well. Having both your Roth IRA and your 401k/403b maxed out gives you some variety in your portfolio in terms of how the investments are taxed. This variety gives you something of a safety net in terms of how taxes and other investments change over time and the affect they will have on your funds. As a side note, when you plan to max out your 401k or 403b, keep your eye on the ever changing contribution limits which vary each year.

4. Open Taxable (Non-Qualified) Accounts: If you have filled in the previous three steps, you will find yourself at the final, and most open ended step of the journey. If you are married this could be a joint account, and for the singles it is a personal account. You can use this account as an emergency fund since there are no age requirements to when you can take the money out without penalty.
This plan is not something to jump into without doing your homework. Like mentioned before, there is a reason that no one has created a perfect plan that fits everyone. Depending on your personal income, you might not be eligible for certain funds, like a Roth IRA, or you might be eligible for some accounts that could take higher priority, such as a SEP IRA. But, for most people, looking for a general order of priority for their retirement investments, these four steps are a great place to start.

Authored by Financial Social Media (financialsocialmedia.com) and Jimmy Hancock

IRAs/401(k)s/403(b)s

Could An IRA, 401(k), Or Any Other Qualified Plan Be Your Only Retirement Savings Solution?

Absolutely not, here is the problem…

The money in your IRA/401(k) or other qualified plans is not all yours!  As much as 40% of it (maybe more) belongs to the government because your invested money is ONLY tax-DEFERRED, not tax-EXEMPT.  And you eventually have to pay tax on every dollar in your account even if you leave it all to your family.

When it comes to retirement planning, simply starting is often the hardest part.  We can help you find the best retirement planning tools but also the motivation to begin.  We can help you determine how much to save and the best way to do so including IRAs, Roth IRAs, 401(k)s, 403(b)s, 457s, and Non-Qualified Plans.

Here is the Solution…

Take some time to get a Retirement Planning Analysis.  This will solve two problems (1) determine which retirement investments are the best for you, and (2) how much you need to save to reach your retirement goals.

Contact us at info@proinvestmentcoach.com to set an appointment or call us at 800-332-8327.