Guide to IRAs - Part 1 You may already be bored after reading that title, but PAY ATTENTION. You're

• 09/21/21

💡 Guide to IRAs - Part 1 💡 You may already be bored after reading that title, but PAY ATTENTION. You're going to want to know this info. Why? Because it's going to save you HUNDREDS OF THOUSANDS OF DOLLARS. Read that again. Not hundreds of dollars, HUNDREDS OF THOUSANDS of dollars 👀. ⭐ Here's an example: ⭐ If you invest the maximum IRA contribution every year ($6,000 or $7,000 if you're age 50 and above) from age 25 to 67, earning an annual return of 7%, this is what you get: Taxable Account: $956,831 Roth IRA: $1,513,658 That's a difference of $556,827 just from putting your money in a different type of account 🤯. Run the numbers yourself here: https://www.thrivent.com/tools/calculators/roth-ira.html Are you paying attention now? ------------------- 💡 What is an IRA? 💡 An Individual Retirement Account (IRA) is an investment account with tax advantages to encourage you to save for retirement. Unlike a 401(k), which can only be opened by your employer, anyone can open their own IRA--hence the "individual" part of IRA. An IRA is like a basket 🧺, and you can fill that basket with cash, CDs, stocks, bonds, mutual funds, ETFs, and more. If you have a self-directed IRA, you can even add things like real estate and commodities, but we'll save that post for another day. There are many different types of IRAs, but the two most common are: Traditional IRA and Roth IRA. I will do a deeper dive into these in another post, but here's a quick sneak peak. With traditional IRAs, you can reduce your taxable income when you contribute money, but will pay taxes when you withdraw money. With Roth IRAs, you will use money that has already been taxed when you contribute, but your withdrawals will be tax free if you follow the qualified distribution rules. ------------------- 💡 General IRA rules 💡 1️⃣ For 2021, the maximum amount you can contribute to your IRA per year is $6,000 (or $7,000 if you're age 50 or older). This amount can change from year to year. So check the IRS website for updates. 2️⃣ You must have EARNED income to contribute to an IRA, meaning you have to have income you earned from a JOB. Income from dividends, interest, social security, or child support do not count. If you earned less than $6,000 in earned income, your annual contribution max is capped at whatever you earned. For example, if you only earned $4,000 this year, you can only contribute $4,000 to your IRA, rather than the usual $6,000/$7,000. There is an exception to this rule called the "spousal IRA"--basically you can still contribute to an IRA if you don't have earned income as long as your spouse has earned income. Please read up on this for all the details since I can't dig into those in this short post. 3️⃣ You can contribute to an IRA IN ADDITION to a 401(k). However, you might not get the full tax benefits of the traditional IRA if you already contribute to an employer-sponsored retirement plan like a 401(k). This is one of the many reasons why I favor the Roth IRA over the traditional IRA. 4️⃣ In most cases, money withdrawn from an IRA before age 59 1/2 will be subject to taxes and penalties. However, there are several exceptions to this rule. 5️⃣ There is no age limit for contributions to a Roth IRA or Traditional IRA. The earlier you start the better, but there can still be benefits to contributing to a Roth IRA even if you're much older. I recently opened a Roth IRA for my parents and they will be able to pass those tax free earnings onto me after their death. 6️⃣ The deadline to contribute to your IRA is the same as the tax filing deadline (not including extensions). As of the writing of this post, the 2021 IRA contribution deadline is April 15, 2022, but please check the IRS website for any updates later. ------------------- As you can see, there is much more detail and several exceptions to these rules. I will do a more detailed post on the different types of IRAs in the near future. As usual, always do your own homework 📖 and consult with a tax professional for answers to questions specific to your personal situation. This post is only meant to give you a glimpse of the world of tax-advantaged accounts and get your brain 🧠 thinking of how you can use them in your own life. ------------------- IG post "losing $500K": https://bit.ly/39oG9o8 IG post general IRA info: https://bit.ly/3zoL4A7 Quick crash course on 401Ks and IRAs: https://youtu.be/Z8y8UXOmJG4 ------------------- Resources: https://www.irs.gov/retirement-plans/traditional-and-roth-iras https://www.fidelity.com/building-savings/learn-about-iras/what-is-an-ira https://www.investopedia.com/terms/i/ira.asp ------------------- #investingforbeginners #stockmarketforbeginners #taxefficiency #investing101 #investingbasics #rothira #traditionalira #ira #feedmybrain #stockmarketeducation

ScottyTaters@Taterscott09/21/21

Most of my questions about IRAs were answered in your post! Thanks for the brain food, @financepillowtalk

Justin O@Justin_O09/21/21

❤️ fantastic information! I had no idea the tax benefits were so substantial.

Monique Nguyen@financepillowtalk09/21/21

@Taterscott that's great! I have more details coming about the different types of IRAs, but I'm glad this answered a lot of your questions already!

Monique Nguyen@financepillowtalk09/21/21

@Justin_O yeah it's crazy when you see the numbers. The effect of taxes on your end result are no joke.

Dr Kim@jkim22909/21/21

@financepillowtalk too bad Roth IRA is not applicable to higher income earners. Backdoor Roth is another option but meh.

Monique Nguyen@financepillowtalk09/21/21

@jkim229 O.M.G. I can't believe you must "meh"-ed the Roth IRA. I feel like that's some kind of sacrilege to the personal finance world. LOL. And yes to the backdoor Roth for high income earners--it's so simple to implement. If you're making high income you're probably not going to qualify for any benefits of the traditional IRA, so why not do the backdoor Roth?

Dr Kim@jkim22909/21/21

@financepillowtalk lazy haha

Monique Nguyen@financepillowtalk09/21/21

@jkim229 lol oh man you're killin me 😂

Brendan@brendanschema09/21/21

Tax-advantaged accounts are so important! Public is a fantastic way to get your toes wet but definitely make sure you look into opening these accounts (hoping they add IRAs soon!) Great post! 🔥

Dr Kim@jkim22909/21/21

@financepillowtalk haha I did my time in school/residency. I have a 403b from the hospital - That they deposit money for me on their end and my own money I deposit as well. So it’s all good haha

Daissy@daissy3409/21/21

🙌 Thank you for this 🥰❤️

Monique Nguyen@financepillowtalk09/21/21

@daissy34 my pleasure! Hope it was helpful!

Radcliffe@radcliffesjr09/21/21

🙌 thank you for posting

Monique Nguyen@financepillowtalk09/21/21

@brendanschema absolutely! Public is a great place to learn and interact, but don’t sleep on those retirement accounts.

Monique Nguyen@financepillowtalk09/21/21

@jkim229 haha well I’m not going to preach you into submission. You do you. Glad you’re taking advantage of the 403b 👍

Steffani@Steffani09/21/21

How do I go back and start at 25? 😬😂

Monique Nguyen@financepillowtalk09/21/21

@radcliffesjr you’re very welcome!

Monique Nguyen@financepillowtalk09/21/21

@oliviajbk 🙏❤️

Monique Nguyen@financepillowtalk09/21/21

@Steffani giiiirl I wish I knew the answer to that question 😂

Steffani@Steffani09/21/21

@financepillowtalk looking into Oregon Saves now - thank you! This post was the kick I needed

Monique Nguyen@financepillowtalk09/21/21

@Steffani check out a Roth IRA. I think it's a better option than the traditional IRA in most cases. Just make sure your income is less than the Roth IRA maximum income limit. If your income is too high, look up "backdoor roth IRA", it's a very simple (and legal) loophole.