Posts Tagged ‘IRAs’

Don’t Let These IRA Myths Deter Your Savings

Monday, April 24th, 2017

How do myths about Traditional or Roth IRAs get started? Typically, you’ve heard myths from an acquaintance who knows someone who knows someone. That person then tells you that they once had either a bad advisor, or had a bad experience, and there starts a rumor/myth. Let’s move past all of that, and get to the truth of the matter.

I make too much/too little to make contributions

Even if you’re only able to contribute $50 a month to your retirement account, it’s SO much better than nothing. Starting to save in your early 20s means you can set aside less and come away with more once you reach retirement age. Set goals for yourself, and make a decision today that will impact your future.

It’s true that if you make $196,000, or more if you’re filing jointly (married), you cannot fund a Roth IRA. But you will, however, be able to fund a traditional IRA with no problem. But there’s a caveat that can make the rules more confusing. Your household income, as well as whether you or your spouse have access to a workplace retirement plan, like a 401K, can change eligibility. These factors impact how much of your traditional IRA contribution the IRS will allow you to deduct from your taxes.

All IRAs are the same

With a traditional IRA, the money you contribute into your account is contributed in tax-free. Once you reach retirement, your withdrawals are taxed as ordinary income.

Roth IRAs basically work the opposite way. Your contributions are made with after-tax dollars, but withdrawals can be made tax-free in retirement. The annual contribution limit for both traditional and Roth IRAs in 2017 is $5,500 if you’re under 50, or $6,500 if you’re 50 or older.

However, as stated above, not everyone can open a Roth IRA. If you earn more than $133,000 as a single tax filer this year, or more than $196,000 as a married couple filing jointly, you won’t be eligible to contribute to a Roth.

I’m too young to start saving for retirement

Impossible. The sooner that you start saving for retirement, the more interest you’ll accrue over your lifetime, also referred to as compound interest. Starting retirement savings in your 20s gives you a huge advantage over those who start a decade later. Again, due to compound interest. If you’re able to save just $2,000 a year beginning at age 25, (about $166 a month), you will have saved more than $500,000 by retirement age. If you start saving ten years later in your thirties, you will save less than $250,000 saved. Kind of speaks for itself. Start as early as possible.

The Right Way to Take Your IRA Withdrawals

Thursday, October 15th, 2015

ira withdrawals 1

What most workers are thinking about before retirement is what’s happening now, in their day-to-day lives. What some of those working towards retirement don’t think about often enough is after retirement. The process, the questions, the uncertainty. But Donna Rosato at Time (found on Twitter at @RosatoDonna) has written about that very topic in a piece that was published yesterday, Oct 14th.


Q: I need to start taking my minimum required distribution from my IRA soon. Is there any tax advantage to taking it in monthly installments as opposed to taking a lump sum once a year? —Sherwood Kahmer, Garnet Valley, Pennsylvania

A: There is no tax advantage to taking your required minimum distribution (RMD) in one lump sum annually vs. installments throughout the year. But the timing of your distribution is important, says Mark Copeland, a founding partner at Signature Estate & Investment Advisors in Irvine, Calif.

First, a little background on how RMDs work. At age 70½, you must start taking money out of your IRA and other tax-advantaged investment accounts such as 401(k)s, according to IRS rules. After years of waiting, Uncle Sam wants to collect the taxes you’ve deferred on your contributions. You must take your distribution by April 1 of the year following the calendar year in which you turn 70½. But after that, you can wait until December 31 of each year to receive the money.

You can choose to take the payments monthly, quarterly, or annually. You’ll pay the same amount of income tax no matter when you receive the money. But taking payments earlier in the year is a “lost opportunity,” says Copeland. “The longer you keep the money in a tax-deferred account, the more time your investments grow without the drag of taxes.”

In fact, most people do take the money in one lump sum at the end of the year, says Copeland. You shouldn’t wait till the last minute to do the paperwork though. If you don’t take the distribution by the December 31 deadline, you’ll pay a 50% tax penalty in addition to regular income tax on the amount that should have been withdrawn. A surprising number of people wait to the very end of the year.

You’ll also pay a penalty if you underestimate how much you owe in taxes. Withdrawals from traditional IRAs are taxed as regular income, based on your tax bracket for the year in which you make the withdrawal. How much you must withdraw depends on the account balance and your age. The IRS has a worksheet that can guide you through it. Or you can use a calculator like this one from T. Rowe Price to estimate your distribution (you must take a minimum amount but you can always take out more). To make paperwork easier, you can also have the taxes withheld from your distribution (10% will automatically be held for federal taxes if you choose this option, but you can elect to have more than 10% withheld).

Of course, there may be good reasons to take the money earlier in the year or in installments. Maybe you need it to cover day to day living expenses, or want the consistent cash flow from monthly distributions.

If you have a complex investment portfolio, there may be advantages to taking withdrawals quarterly; consult with a tax adviser.

The bottom line: “You can’t avoid the taxes, but keep what you don’t need tax deferred for as long as you can,” Copeland advises.

What Experts Are Saying About Investing in Gold

Monday, August 31st, 2015

Gold Investing 3

Gold, of all commodities, has had its hectic ups and downs, so it’s needless to say that investing in precious metals isn’t for the faint of heart. Or is it? There’s a lot of misinterpretation when it comes to precious metals, especially gold. Let’s shed some light on the matter, and see what the pros are saying about investing in gold in the 21st century.

About interest rates

Some analysts are saying that the on-going threat of the Federal Reserve rate hiking is a big reason to avoid investing in precious metals. The reality is that it remains to be seen whether or not the Fed will follow through on this rhetoric of a hike in September 2015. But nominal interest rates do not determine whether precious metals are more or less attractive than interest-bearing debt instruments.

As a retirement option

A gold-backed IRA as a retirement option, is a self-directed IRA that holds precious metals, namely, gold. By diversifying, it adds more stability to your IRA. Adding gold and other precious metals to your portfolio lowers risk by diversifying from paper assets, consequently hedging against the economy and inflation.

Buying low, selling high

Everyone’s heard this term before, and its meaning still holds true today, and frankly, those are words to live by with gold investing. When the Stock Market is uneasy, and starts to take a downturn, a lot of reactions are the same; sell. Sell it all. It is difficult to suppress these reactions, but we all need to do what is counter-intuitive, and that’s when we should be buying. The reason for this is that value price of gold and our economy are inversely related. Our economy is based on currency that is known as fiat, meaning that it is worth only the value of the actual paper it is printed on. So when we experience market decline, stocks and the dollar move downward. They become less desirable. Gold then becomes more desirable and according to the law of supply and demand it’s value increases as well.

Bottom line is that gold is recognized as the true standard of value across the globe. It is a standard for world wide exchange, and has been since the dawn of time. It maintains its value from one country to another, and is not subject to the same systematic risk that the stock market has been known for.