What if I told you there is a way you can easily save hundreds of thousands of dollars, if not millions, by the time you retire and withdraw it tax free? Now that I got you hooked, let's learn together on how we can do this. Note, this article is extremely fast paced, as I want to get the information straight to you and not waste your time. If you have questions, simply just give a thumbs up and ask below. Thanks!
PREFACE:
Retirement is one of those tricky things that many people simply don't know about, especially in their teenage, young adult and adult years.
Many people figure that it's so far away that it doesn't matter or isn't important and it's something to discuss later. Well, the truth of the matter is, the longer you wait, the less money you make, get this, possibly hundreds of thousands a year, if you plan and start late. I personally want to equip you with knowledge and a few options via IRA's today, so you can choose what you want and be able to make an informed decision in the future.
LEGAL DISCLAIMER: I am not a legal tax professional and this is not legal tax advice. Even though it is to my best knowledge, research and experience accurate, I legally cannot guarantee anything. Do your own research afterwards and form your own opinion.
NOTE:
I'm not going to get into why you need to and how to plan for retirement, as it will take many chapters and hours of writing, if it doesn't cover a book's content. But, in this article, I do want to expose a few ways you can save up your money for retirement and add back hundreds of thousands of dollars into your pocket, versus the traditional route of mutual funds, 401K, etc. This will be covered in another article, but the hook is, most mutual funds and 401Ks are robbing your retirement money in fees and I will expose this as well as present a plan in another article.
Let's begin:
What is an IRA? As Fidelity.com states, "An IRA is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis." https://www.fidelity.com/building-savings/learn-about-iras/what-is-an-ira
Simply put, it's a place you store your money that grows with tax benefits. Let's discuss these benefits and see which one is the best fit for you. I argue it is most likely a Roth IRA, but you will see.
ROTH IRA:
A Roth IRA is an account in which you pay taxes now on the amount you save and it compounds annually with the market (average of 9% annual compounding). When you withdraw the money by either
a) being over 59.5 years old
b) withdrawing the money towards your first house payment
c) being legally disabled
AND owning the IRA at least 5 years
the money withdrawn from the IRA is tax-free. The only condition is that you can contribute a maximum of $5,500 a year (or $6,500 if over 50 years old) and make no more than 120,000 if single and 189,000 married. More specifics for 2018 are here: https://www.rothira.com/2017-roth-ira-limits-announced
The reason this is the best option is, without a doubt, taxes will increase as you get older. The USA is over 21 trillion in debt and one of the ways the country will pay for it's expenses is increasing taxes for everyone. Almost certainly 30-40 years from now, you will pay more taxes. The great thing is, if you pay taxes now on the money you invest in the Roth IRA, you will withdraw the money at retirement tax-free.
For example, let's use this handy calculator to see potential retirement savings.
https://www.bankrate.com/calculators/retirement/roth-ira-plan-calculator.aspx
Bob is 20 years old and learned about retirement. He decided to put $500 a month away towards his retirement for life, adding up to the maximum contribution amount of $5,500 per calendar year. He pays 25% in taxes. After 40 years, with an average market growth of 9%, Bob withdraws his money. Due to annual compounding, his total contributions of $220,000 has amassed a total of $2,025,605.00 withdrawn tax-free. If he choose a traditional IRA, his taxable rate would be $1,099,000 due to being in the highest tax bracket, saving him over a million dollars in taxes. If he decided to hold out 10 more years, due to the magic of compound interest, his money grew to 4.8 million. And another 5 years, 7.5 million.
Use the calculator and see what your average retirement income will be using a Roth IRA. here https://www.bankrate.com/calculators/retirement/roth-ira-plan-calculator.aspx
TRADITIONAL IRA:
A traditional IRA is the same thing as a Roth IRA, except you pay your taxes after the withdrawal. For the previous example, if the Roth IRA, Bob paid 25% in taxes, he actually would have contributed $5,500 a year and paid $1,100 a year in taxes. Which would have added up to: $220,000 divested, $44,000 in taxes paid. With the traditional IRA, you would only pay the $220,000 and not pay taxes, until you withdraw. But the difference is, when Bob withdrew, he got 2 million tax free (44K paid during the investment lifetime cycle) , and with the traditional, you would pay 1 million in taxes. I don't know about you, but I'd much rather pay 44K than 1000K!
Rollover IRA:
A Rollover IRA is simply asking the employer or company to roll over funds from a 401K or 403b into a traditional or Roth IRA. This is great when you might have learned the fees your being charged for having your 401K maintained or simply not seeing a good result from your investment or want tax-free savings.
You can open and IRA with many companies, but my best recommendations are two companies. I personally use Schwab and they are have been great with low fees, great customer support and information, security, and ease of use.
Schwab or Vanguard
VANGUARD: https://investor.vanguard.com/ira/iras
SCHWAB: https://www.schwab.com/public/schwab/investing/accounts_products/accounts/ira
These companies, by far, charge the least amount of fees and are, for the most part, good people to work with. Many of the rest try to do very sneaky things with your money. Beware of the fees! Even 1% extra in fees can diminish your lifetime retirement savings by up to 50%. See how much you pay in fees by getting a free check at https://americasbest401k.com/fee-checker/
The link above may very well save you your retirement income and be the difference between taking it easy and having a great life, or living paycheck to paycheck on social security and going broke, a scary yet very real situation in today's world.
LAST WORDS:
I hope these new options have helped you see a new possibility of what is out there and what you can do to save for retirement. I hope it also exposed a little bit of truth and shed some light on some big words and scary topic that most people are uncomfortable talking about and shove to the side. I hope it inspired you to go and open your own IRA and put away more money towards your golden years and plan for the future. If at least if made you think a bit more, give this article a thumbs up for my time. I sincerely appreciate being able to provide you with some insight and more value and wish you all of the best in success in your life.
To followers who liked and were interested in my previous fiat post (https://steemit.com/steemit/@millermoo36/part-1-of-5-series-an-introduction-to-the-current-western-financial-system-what-problem-digital-currency-solves-and-why-steem):
