Archive for February, 2017

Minor IRA Mistakes That Could Have Major Impact: Part One

Monday, February 20th, 2017

minor IRA mistakes

Opening up and making contributions to your first retirement account, and fully understanding your new IRA unfortunately aren’t synonymous. There’s a stark, and growing difference in accounts that are attended to, and accounts that are left to sit, and the key to your IRA being healthy and working how it should, it you, and only you.
When there’s so much resting on the actions you take now, those actions should be a fully educated move, and not a guess. There are common errors that new IRA holders make, and they’re easily avoided, so let’s dive in.

Being ignorant to your account options

If you’re a professional, you’ve most likely heard the industry terms thrown around, IRA, 401K, Traditional, Roth, and so on. You may not know the difference, but let’s fix that.

401K – A 401K is a retirement plan that’s sponsored by your employer, you’re able to save a percentage, or a determined sum of your paycheck, before taxes, and have that money put into your 401K. Some employers offer matching contribution programs, where they will match your contribution up to a certain percent.

IRA – An IRA stands for Individual Retirement Account, you as an individual open the account with a bank, brokerage firm, or IRA administrator, you determine the account type, amounts you want contributed, and in some cases (if you have what’s called a self-directed IRA), you decide the assets to be held within your IRA.

Traditional IRA – A Traditional IRA is one type of account, of many, that you can pair with your IRA. A Traditional IRA is probably one of the most common account types. How it works is that you contribute pre-taxed money to your account, which allows your account to grow tax-deferred. At retirement age (59 ½), when you start taking distributions from your Traditional IRA, taxes will apply to your withdrawn money.

Roth IRA – Roth IRAs are different from Traditional in that your contributions are made with money that’s already been taxed, so your earnings grow at a tax-free rate. When it comes time to take distributions from your Roth IRA, no taxes are taken from your withdrawn money.

So now that we know the difference between and IRA and a 401K, it’s important to state that you’re allowed to have both a 401K, and an IRA. As you change jobs or careers, it’s kind of inevitable you will have both.

Not meeting matching contributions

This is a cardinal sin in the retirement industry. Say you’re lucky enough to have an employer that offers a 401K program, and along with that program, they offer matching contributions. TAKE. IT. That’s essentially free money. My personal favorite oxymoron. These are basically the options you’ll be given with a 401K matching program:

Fixed match: Your employer will match 1$ for every 1$ you contribute to your plan, usually up to a specified amount, such as 5% of your pay.

Percentage match:
Your employer matches the percentage of money you contribute into your 401K. again, usually at a cap of, for example, 3%.

Come back next week for part two, to read up on the rest of the most common IRA mistakes, and how to avoid them.

How Roth and Traditional IRAs Will Differ This Tax Season

Wednesday, February 8th, 2017

tax season 2016

Traditional IRAs
A Traditional IRA not only offers tax-deferred growth, but it also offers tax-free contributions. Usually, you will get a tax break for the that you contributed to your IRA, and you don’t have to pay taxes until the day you retire, and start taking distributions. Keep in mind though that your distributions will be taxed as regular income.

Roth IRAs
One of the biggest downsides to a Roth IRA compared to a Traditional IRA, is that Roth doesn’t give you a tax break right up front. That’s because Roth contributions are made up of after-taxes money, so if you’re seeking out a way to lower your current tax burden, and Roth IRA might not be for you. On the flip-side, when you’re ready to take retirement distributions from your Roth IRA, your money won’t be taxed as you withdraw money, so all the investment gains are for you to keep.

Required minimum distributions
Another factor to contemplate when comparing IRAs is mandated withdrawals from your plan. Currently, traditional IRAs force you to start taking required minimum distributions (RMDs) once you turn 70-1/2. This can be problematic if you’re at a point in your life where you don’t need the money, since your RMD will automatically trigger a tax situation.

Imagine, for example, that you decide to work until age 75, and therefore don’t need to tap your retirement savings until then. With a traditional IRA, you’ll be required to take an initial withdrawal by April 1 of the year following the calendar year in which you turn 70-1/2, regardless of whether you want or need it. Not only will you lose out on the opportunity to keep that money invested, but that extra cash could bump you into a higher tax bracket if you’re bringing in a solid salary already.

But you can’t ignore your RMD either. If you fail to take your required distribution, you’ll be assessed a 50% penalty on whatever amount you neglect to withdraw. All of this highlights another tax benefit of the Roth IRA. Because Roth’s don’t impose RMDs, you can leave your money invested indefinitely.

Accupod Episode 9: What is a Self-Directed IRA? Long version

Monday, February 6th, 2017

Final Podcast image

This week, we’re talking all things self-directed IRAs. From what it is, to if it’s right for you, and everything in between. A self-directed IRA gives you more control and more investment options, like real estate, precious metals, small business, private placements, and so on.